Advertising and pricing policies in the equine breeding industry or sex and the single stallion

Abstract

A unique aspect of the equine breeding industry is the way in which the current year's demand for stud services depends on the previous year's production levels. In a monopolistically competitive market, product differentiation and product promotion and advertisement are important aspects of industry conduct. A stallion's reputation and therefore demand for his services depend on the stallion owner's ability to differentiate the product. The price a stallion owner charges depends on the quality of the stud himself, and also on the quality of his offspring. The producer's output (foals) become advertisements for the stallion when they are raced, shown, etc. They also can become substitutes for the stallion, since they are an alternative source of the stallion's genes. Stallion owners are in the special position that they need to prove their stallion's ability to sire quality offspring, while bearing in mind they are producing possible substitutes. Outstanding offspring will generate demand for the parent's services if they are successfully shown, raced, etc. Conversely, progeny who compete unsuccessfully will decrease demand by contributing to a poor reputation for themselves, their breeder and their sire. But, outstanding individuals eventually become breeding stock and therefore offer an alternative source for the ‘winning genes’. This intergenerational dependence has led to pricing policies and practices in the equine breeding industry which have important implications. Common practices include: incentives to compete, rebates for gelding male offspring, price discrimination in favour or quality mares and limited bookings. These policies illustrate aspects of industry conduct commonly discussed in industrial organization literature such as first-degree price discrimination, non-linear pricing and non-price competition. The use of artificial insemination and other new breeding technologies and thus the potential for a stallion to breed larger numbers of mares, further compounds the extent and results of such practices. This paper investigates pricing policies in the equine breeding industry, using a case study approach. A model of indsutry pricing policies is developed and tested using data for American Quarter Horses.