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Do Cooperatives Offer High Quality Products?

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  • Pennerstorfer, Dieter
  • Weiss, Christoph R.

Abstract

The present paper investigates the free-riding problem in determining product quality within cooperatives in a vertically related market. Whereas the individual member has to bear all costs associated with higher quality, the benefits of delivering higher quality have to be shared among all members. On the basis of a Mixed-Oligopoly model, we show that the free-rider problem in the supply of high-quality products, although important for the members of the cooperative, may not be strong enough to ensure that firms will always supply higher quality than cooperatives. Whether the cooperative can overcome the free-riding problem and supply a final product of high quality is shown to depend on the consumer'’s valuation of quality, the costs of producing high quality, the way in which the quality of the final product is determined from the quality levels of the inputs delivered as well as on the number of members of the cooperative.

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File URL: http://purl.umn.edu/9403
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Bibliographic Info

Paper provided by European Association of Agricultural Economists in its series 103rd Seminar, April 23-25, 2007, Barcelona, Spain with number 9403.

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Date of creation: 2007
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Handle: RePEc:ags:eaa103:9403

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Keywords: Agribusiness;

References

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  1. George W. J. Hendrikse, 1998. "Screening, Competition and the Choice of the Cooperative as an Organisational Form," Journal of Agricultural Economics, Wiley Blackwell, vol. 49(2), pages 202-217.
  2. Bernd Frick, 2004. "Does Ownership Matter? Empirical Evidence from the German Wine Industry," Kyklos, Wiley Blackwell, vol. 57(3), pages 357-386, 08.
  3. Economides, Nicholas, 1999. "Quality choice and vertical integration," International Journal of Industrial Organization, Elsevier, vol. 17(6), pages 903-914, August.
  4. Claude Ménard & Peter G. Klein, 2004. "Organizational Issues in the Agrifood Sector: Toward a Comparative Approach," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 86(3), pages 750-755.
  5. Peter Bogetoft, 2005. "An information economic rationale for cooperatives," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 32(2), pages 191-217, June.
  6. Albaek, Svend & Schultz, Christian, 1998. "On the relative advantage of cooperatives," Economics Letters, Elsevier, vol. 59(3), pages 397-401, June.
  7. Hoffmann Ruben, 2005. "Ownership Structure and Endogenous Quality Choice: Cooperatives versus Investor-Owned Firms," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 3(2), pages 1-26, December.
  8. Claude Ménard & Peter G. Klein, 2004. "Organizational Issues in the Agrifood Sector: Toward a Comparative Approach," Industrial Organization 0401005, EconWPA.
  9. Jaskold Gabszewicz, J. & Thisse, J. -F., 1979. "Price competition, quality and income disparities," Journal of Economic Theory, Elsevier, vol. 20(3), pages 340-359, June.
  10. Bruce A. Babcock & Quinn Weninger, 2004. "Can Quality Revitalize the Alaskan Salmon Industry?," Center for Agricultural and Rural Development (CARD) Publications 04-wp359, Center for Agricultural and Rural Development (CARD) at Iowa State University.
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Cited by:
  1. Marco, Marini & Alberto, Zevi, 2010. "'Just one of us': Consumers playing oligopoly in mixed markets," MPRA Paper 31213, University Library of Munich, Germany, revised 30 May 2011.

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