Do Cooperatives Offer High Quality Products?
Dieter Pennerstorfer and Christoph R. Weiss No 58111, 113th Seminar, September 3-6, 2009, Chania, Crete, Greece from European Association of Agricultural Economists Abstract: Cooperatives and investor-owned firms are alternative forms of business organisation that coexist and compete in many markets. The theoretical literature has identified a number of comparative advantages and disadvantages of cooperatives. Decentralized decision making within cooperatives may lead to quality coordination problems (free-riding on product quality), for example: whereas the individual member has to bear the full costs associated with higher quality, the benefits of delivering higher quality will be shared among all members. The present paper investigates this free-riding problem in determining product quality within a marketing cooperative in a vertically related market (food chain). On the basis of a mixed-oligopoly model, we show that the free-rider problem in the supply of high-quality products mig
