Ownership Structure and Endogenous Quality Choice: Cooperatives versus Investor-Owned Firms
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Ruben Hoffmann
This paper examines how ownership structure affects endogenous quality choice and the subsequent equilibrium outcomes. Investor owned firms (IOFs) and producer cooperatives (COOPs) are analyzed within a duopoly framework including a primary and a secondary level. The firms play a two-stage game, first simultaneously choosing the level of quality to produce and then compete in prices. It is shown that if the cost of quality at primary level is fixed, and/or variable exhibiting non-constant returns to scale, firms can have a structural cost advantage due to ownership structure in addition to the high-quality advantage identified in the previous literature.In the case of a fixed cost of quality at primary level, it is shown that although IOFs charge higher prices they generate a larger consumer surplus than COOPs by marketing higher qualities. Cooperatives generate a larger producer surplus while the market share of the high-quality good is independent of ownership structure. In the case of a variable cost of quality at primary level, a cooperative firm possesses a structural cost advantage which is used to market larger quantities of higher levels of quality generating larger profits, larger consumer surplus and larger social welfare. Policy implications of the different structures are discussed.
©2011 Walter de Gruyter GmbH & Co. KG, Berlin/Boston
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Articles in the same Issue
- Article
- On Cyclical Industry Evolution in Agricultural Biotechnology R&D
- Losing Under Contract: Transaction-Cost Externalities and Spot Market Disintegration
- Railcar Auctions for Grain Shipments: A Strategic Analysis
- Dethroning Economic Kings: The Packers and Stockyards Act of 1921 and its Modern Awakening
- Demand Screening with Slotting Allowances and Failure Fees
- A Simple Test of Oligopsony Behavior with an Application to Rice Milling
- The Impact on Farmers of Privatizing Parastatal Agricultural Monopsonies
- Ownership Structure and Endogenous Quality Choice: Cooperatives versus Investor-Owned Firms
- Private Label Products as Experience Goods
