How do you know that cutting price of Roundup was a good idea for Monsanto?
One of the factors for Roundup’s success is because of the increasing popularity of conservation tillage. But as the conservation tillage is sensitive to the price of herbicides, the price of herbicides is very elastic. Therefore, the demand for herbicide will respond substantially to changes in the price. For Roundup, when its price was reduced by 9%, the sales volume was increased by 22%. 22% is much higher than 9%. As a result, the price of Roundup is very elastic and the cutting price of Roundup will increase much more sales volume. In addition, Monsanto can exploit economies of scale, the cost will not be very high. As the percentage…show more content… Besides, according to the case, the patent of Roundup was expired in other countries except for US before 1995, many companies in other counties might have the chance to duplicate Roundup, thus making many substitutes in the international markets. So it is general that the international demand is more elastic than that of domestic. According to the suggestions of the elasticity rule, if the price decreases a little bit, the demand increases a lot with a much larger degree, then the demand is more elastic. So after comparing the prices and demand elasticity of Roundup in the US market and international market, the result is consistent with the suggestions of the elasticity rule.
Read Exhibit 3. Monsanto was able to keep itself as a dominant firm in the herbicides market even after Roundup's patent expired. How would Monsanto achieve this?
Firstly, before the Roundup's patent was expired, Monsanto had kept itself as a dominant firm for many years, so Monsanto had built up strong brand recognition in this industry. Even though other companies can product same herbicides after patent expired, some original customers would choose the brand that they have used.
