Yet More Evidence Against the DOJ's Antitrust Plantings

Michael Sykuta —  6 January 2010

A couple weeks ago, Geoff wrote concerning the DOJ’s misguided antitrust interest in Monsanto. With that in mind, I was very interested to see today’s announcement that Monsanto’s earnings and gross margins are significantly off for its fiscal first quarter.  According to the Wall Street Journal report, Monsanto posted a loss for the quarter due to a 36% drop in sales and lower margins resulting from price decreases.  Leading the drop, sales of the company’s Roundup and other herbicide products tumbled 63%!

Clue #1: Falling prices are not typically associated with (legitimate) cause for antitrust concerns.

In the case of Roundup, the popular herbicide is under intense competition from generic brands since the Roundup patent expired. That’s exactly the way our limited-monopoly intellectual property system is supposed to work: allow the innovator a period of time to recoup their investment in the innovation, then open the door to competition that will drive down prices and spread use of the innovation even further (if the innovation is really of value to begin with).

More importantly to the DOJ’s witch hunt, which is not about herbicide but biotechnology and seed products, the WSJ went on to report that sales of seeds and genomics dropped 6.2%!  Seeds containing genetic traits that provide herbicide and pest resistance command a premium, largely reflecting the cost savings to farmers from using less intensive farming practices.  Seems in an era of lower commodity prices, farmers are less willing to shell out the big bucks for biotech seeds.  Who’d have guessed?  Well, maybe someone who doesn’t make a living sniffing around for anticompetitive behavior under ever rock and stone (or competitors who envy a popular, proprietary technology).

Clue #2: If consumers (in this case farmers) are choosing to substitute away from relatively more expensive products (biotech seeds)  in favor of less expensive, even if lower-tech, products, the high-tech product does not, by definition, enjoy a monopoly.  And don’t forget Clue #1.

All this to say, add another piece of evidence against the need for and wisdom of the DOJ and USDA’s impending traveling circus “investigating” the state of competition in the agriculture sector.

4 responses to Yet More Evidence Against the DOJ's Antitrust Plantings


    Michael Sykuta, the comment by Dave is actually correct. The fallacy lies in defining a too wide market, thus failing in assessing du pont actually dominant position. The wiki has an article about this by the way.


    Keep in mind that a drop in Q1 seed sales may be tied in to the late harvest and subsequent late order of seeds – I’d keep an eye on Q2 and Q3 seed/genomics sales to assess Monsantos performance in this area.

    Although envying the technology is hardly grounds for calling it anti-competitive – if Monsanto chose not to license it (which I’m pretty sure they could given that it is patented) then maybe they’d have a case – it just happens that Monsanto want to protect the integrity of the product they license and therefore wont allow it to be stacked with other herbicide resistance traits (which dont really work all too well, hence the requirement to stack) to avoid losing confidence in their own system, or building false confidence in a system introduced by a competitor.

    Michael Sykuta 7 January 2010 at 7:28 am

    With all due respect, Dave, the fallacy is that DuPont had an unlimited monopoly in cellophane, or that the appropriate market definition for cellophane was defined very narrowly as to include only cellophane.

    A monopoly is a firm that sells a good with no close substitutes. The degree of closeness is exactly the idea that people will substitute to another product that serves a similar, in not identical, purpose.

    The fact that farmers are substituting to traditional hybrids or genetically-enhanced seeds produced by other firms is a pretty clear indication that Monsanto does not hold a monopoly in the relevant market, and that is the market for seeds, whether biotech or not.


    Regarding the second clue, are you aware of the Dupont cellophane fallacy? Every monopolist will raise price until it’s customers begin to substitute away from its product(s). So it is wrong to draw the inference from this that you do, namely, that this substitution is evidence against a monopoly.