Environmental Regulation, Market Power and Price Discrimination in the Agricultural Chemical Industry



(Alberta or Montana). This is not the case. Prices are higher in Alberta for five
chemicals and higher in Montana for seven chemicals. This suggests that third-order
price discrimination is the real issue.

Table 3 shows the companies that manufacture each chemical, as well as cross-
border average prices and price differences. The one chemical for which there is no
significant difference in prices is Roundup Original. The product, whose active
ingredient is glyphosate, is produced and sold by Monsanto, which held a U.S. patent on
the product until 2002, but generic glyphosates are now also sold by several other
companies in both Canada and the United States. Among the other twelve chemicals,
two face generic competition or are produced by several competing companies (LV6 and
Amine 4). The remaining ten are produced either by a single manufacturer (four by
Syngenta, two by DuPont, one each by BASF and Bayer) or by Bayer in collaboration
with either Aventis or Arvesta. These results suggest that generally the economically and
statistically significant price differences are associated with market power and differences
in elasticities of demand.

Assuming that this is the case, a natural question is why demand is more own-
price elastic in Canada for some chemicals and less own-price elastic for others. Two
possibilities spring to mind. The first is that differences in crop mixes in Canada and the
United States lead to differences in demand elasticities. While this is a possibility, given
that (1) arbitrage is feasible within Canada across large regional markets and also within
the United States and (2) complex mixes of crops are raised in both countries, it seems
unlikely that crop mix is the main issue.11

11 It should be noted that the ability to arbitrage across states in the United States may be restricted because
each state must registered a chemical for use. However, if a herbicide is approved for a specific use by

16



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