Differences in regulatory regimes may also be important. Suppose, for example,
that chemical A is approved for use in Canada but so too are other chemicals that may
have different formulations (including different active ingredients) that perform similar
functions. In addition, chemical A is also registered in the United States, but no close
substitutes are also approved. The difference in the regulatory regimes may well account
for the difference in the elasticities of demand (higher in Canada and lower in the United
States), and the higher price for chemical A in the United States. The situation may be
the exact opposite for chemical B. While, currently, no exhaustive evidence is available
to determine which hypothesis is correct, the case of Roundup suggests that differences in
regulatory regimes are important. Once Monsanto’s U.S. patent for its Roundup product
had expired in 2002, as it already had in Canada where close substitutes were then
registered for use, similarly close substitutes were registered for use in the United States
and differences in prices in the two markets essentially disappeared.
The question then arises as to why there are differences in the regulatory regimes.
In some cases, serendipity may be at work: some firms simply have not sought
registration in, say, Canada but have obtained registration in the United States (perhaps
because of differences in the sizes of the markets and regulatory approval costs). In
others, lobbying of the regulatory authority by producers may be relevant. However, as
in the case of Roundup, differences in patents and the timing of patent expirations also
may be important.
EPA and registered for that use in one state, then typically other states will also register the herbicide for
that use (say control of wild oats in wheat fields). Moreover, either users (farmers) or manufacturers may
initiate the state level registration process.
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