This article investigates how to regulate transgenic soybean production in Argentina. Taking into account the broad range of negative externalities associated with transgenic soybean production, we explore the effects of two different policy instruments, namely a subsidy for non-transgenic soybean and production quotas for transgenic soybean. Taking into account the political and economic context in Argentina, we demonstrate that auctioned production quotas are the best way to achieve the regulation of transgenic soybean production. However, the organization of the agricultural sector in Argentina is such that "raising rivals’ costs" behavior could occur on the quota market although the output price is set exogenously. We show that auctioned quotas limit this anti-competitive behavior. Finally, we demonstrate that introducing a shadow cost of public funds leads to an increase in the optimal production level of transgenic soybean.