On the Relative Disadvantage of Cooperatives: Vertical Product Differentiation in a Mixed Oligopoly

Weiss, Christoph and Pennerstorfer, Dieter (2012) On the Relative Disadvantage of Cooperatives: Vertical Product Differentiation in a Mixed Oligopoly. Journal of Rural Cooperation, 40 (1). pp. 60-90. ISSN 0377-7480


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We investigate the incentive to provide goods of high quality in a vertically related market for different types of business organizations, a farmer-owned cooperative and an investor-owned firm. Contrary to the firm, the cooperative is characterized by decentralized decision making, which gives rise to overproduction and problems coordinating the quality decisions of its members (free riding). Comparing both manufacturers acting as monopolists we show that the cooperative will never supply final goods of higher quality than the firm, and that the problem of quality coordination is mitigated if the cooperative succeeds in preventing overproduction. When a cooperative faces competition of an investor-owned firm (mixed duopoly), it will - except in one limit case - never produce final goods of a higher quality than the firm and will deliver lower quality in a number of scenarios.

Item Type: Article
Additional Information: To see the final version of this paper please visit the publisher's website. Access to the published version requires a subscription. The original publication is available at http://departments.agri.huji.ac.il/economics/en/jrc.htm .
Keywords: Cooperatives; Mixed Oligopolies; Agricultural Markets; Product Quality
Divisions: Departments > Volkswirtschaft > Volkswirtschaftspolitik u Industrieökon.
Version of the Document: Accepted for Publication
Depositing User: Gertraud Novotny
Date Deposited: 08 Jun 2017 08:47
Last Modified: 08 Jun 2017 09:17
Related URLs:
FIDES Link: https://bach.wu.ac.at/d/research/results/57676/
URI: https://epub.wu.ac.at/id/eprint/5585


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