In 2014 the company came out with a new planter that featured an innovative system allowing it to plant seeds while moving as fast as 10 mph, or twice as fast as planters normally go these days. Besides saving farmers a lot of time, the big advantage of this system is that it allows more of a crop to be planted at an optimal time in the growing season, thereby boosting yields.
Shortly after Deere unveiled this innovation, a company called Precision Planting, a division of Monsanto, came out with its own high-speed planting system that could be attached to existing planters to achieve the same precision and speed as the Deere planter. Deere responded the next season by coming up with its own high-speed planter attachment for existing planters. Soon afterward, Precision Planting partnered with two of Deere’s major competitors—Case–International Harvester and AGCO (whose brands include Massey Ferguson)—to allow them to offer Precision Planting’s technology as an option on their new planters.
At the end of 2015—about 18 months after the appearance of high-speed planters—this flurry of activity culminated in Deere making an offer to buy Precision Planting, which was accepted. Last month, the Justice Department’s antitrust division announced it would sue to stop the merger, claiming that the combined entity would have a virtual monopoly over the high-speed planter market and would thus be anticompetitive.
Distinct market? / Of course, whether there is a separate “high-speed planter market” or just one broad market for planters fast or slow is the relevant question to ask. After all, scarcely two years ago there was no such thing as a high-speed planter, and the majority of planters being used in the field today are not high-speed planters. The two are interchangeable and it’s still not completely clear just how much the new version improves field output. No one seems to think that every farmer will have a high-speed planter in the near future.
These days most economists tend to be leery of claims that a merger will produce a harmful monopoly. As long as competing firms have the ability to enter the market, it stands to reason that new firms will appear if Deere sets the price on its planter too high. However, the Justice Department produced a memo from one of Deere’s employees stating that the merger would “lock up” the market for high-speed planters, owing to the patents and intellectual property that the combined entity would hold.
Maybe that would be true in the short-run, but there’s no reason to think that competing companies couldn’t figure out a way to come up with their own original innovations and boost market share. If Deere charges too high a price, its competitors will have a very lucrative incentive to do precisely that. In fact, two competitors—Kinze and Horsch—have already entered and together comprise nearly 15% of high-speed planter sales. The Justice Department’s complaint describes Kinze’s and Horsch’s products as inferior and suggests they would never be as efficient as the Precision Planting or Deere products, but that implies a degree of foresight that would be unusual for a bureaucrat.
The government isn’t very prescient when it comes to determining a market—Microsoft’s domination of the market for internet browsers in the late 1990s didn’t last terribly long or inflict too much lasting damage, despite the government’s concerns about that market concentration.
The Justice Department’s lawsuit isn’t the last word, of course; normally it negotiates with the parties involved in mergers it doesn’t like in order to reach some sort of settlement that the bureaucrats deem acceptable. But in the case of John Deere and Precision Planting, such talks apparently came to naught—predictably, perhaps, since there does not seem to be much that could be spun off to lessen the combined entity’s market share. Besides, it’s quite likely that the DOJ and Deere have completely conflicting viewpoints about what the market share actually is. And it is hard to conceive of the company licensing its intellectual property to a competitor at some “reasonable” price negotiated by Justice.
Conclusion / It’s hard not to conclude that the government’s attempt to call high-speed planters a new market, distinct from other planters, amounts to moving the goalposts in the middle of a game. There’s no evidence that not having high-speed planters will put any farmers out of business, or that every farmer (or even most farmers) will feel compelled to buy one even if his current planter is fully depreciated.
Two companies made sizeable investments in research and development and came up with a nearly identical innovation at precisely the same time that radically improved productivity for an existing product. The tight competition this engendered meant that neither manufacturer made nearly the profits it expected. So they merged. Condemning this as something government should stop is a difficult argument to make.
One thing is certain: if the Justice Department’s decision to stop the merger is upheld, it will make some companies think twice about what sorts of innovations they pursue.