The demand for seed potato is unstable as a result of the fluctuations of food potato prices. According to Finnish food potato producers, a lower price of seed potato would allow them to buy all the seed from seed potato producers instead of using their own seed. However, fluctuations in the demand for seed potato forces seed potato producers to keep the prices high. In other words, prices increase due to uncertainty in the market. This uncertainty causes costs to both food and seed potato producers: the price of seed potato stays high and its demand stays low. This, in turn, results in dead weight losses (Parkin 1990, p. 532; Tirole 1988, p. 9). If seed potato producers lowered the price of seed potato, the costs for food potato producers would decrease, and thus their profits would increase. In full competition, however, food potato producers would compete for profits off the market in the long run by lowering the price of food potato. The relatively low price of the food potato would again tend to increase its use as seed and thus the demand for seed potato would again become unstable. Uncertainty in the market would increase the price of seed potato. And so the situation would be the same as in the beginning.
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