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Explaining Cooperative Enterprises through Knowledge Acquisition Outcomes

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  • Helmut Dietl

    ()
    (Department of Business Administration, University of Zurich)

  • Tobias Duschl

    ()
    (Department of Business Administration, University of Zurich)

  • Martin Grossmann

    ()
    (Department of Business Administration, University of Zurich)

  • Markus Lang

    ()
    (Department of Business Administration, University of Zurich)

Abstract

This paper develops a formal model of a cooperative enterprise which explains why cooperatives are present in such a large number of sectors. In our model of a multi-stage production process, we account for the possibility that producers can acquire knowledge to decrease their cost of production. We distinguish between knowledge that can be generalized among producers, and knowledge that cannot be generalized and therefore is idiosyncratic to each production site. We compare the cooperative's outcomes with simple models of a vertically separated market of autonomous producers and of a centralized hierarchy consisting of fully owned subsidiaries. To conduct a meaningful comparison, we establish equilibrium outcomes for knowledge acquisition, output, and profits generated in each organizational arrangement. From the comparison, we derive parameter constellations, under which the cooperative outperforms the market and hierarchy forms of business organization. This article contributes to the organizational economic analysis of cooperatives and provides a model that illustrates the competitive advantages of cooperatives in the market-hierarchy continuum.

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File URL: http://repec.business.uzh.ch/RePEc/iso/ISU_WPS/68_ISU_full.pdf
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Bibliographic Info

Paper provided by University of Zurich, Institute for Strategy and Business Economics (ISU) in its series Working Papers with number 0068.

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Length: 37 pages
Date of creation: Sep 2007
Date of revision: Dec 2011
Handle: RePEc:iso:wpaper:0068

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Keywords: Cooperative; hierarchy; market; organizational knowledge; knowledge acquisition;

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  1. Hansmann, Henry, 1988. "Ownership of the Firm," Journal of Law, Economics and Organization, Oxford University Press, vol. 4(2), pages 267-304, Fall.
  2. Michael Higl, 2003. "Vertikale Kooperation im Oligopol Die Gestaltung der Genossenschaftsorganisation als strategischer Zug," Discussion Paper Series 243, Universitaet Augsburg, Institute for Economics.
  3. Williamson, Oliver E, 1979. "Transaction-Cost Economics: The Governance of Contractural Relations," Journal of Law and Economics, University of Chicago Press, vol. 22(2), pages 233-61, October.
  4. Klein, Benjamin & Crawford, Robert G & Alchian, Armen A, 1978. "Vertical Integration, Appropriable Rents, and the Competitive Contracting Process," Journal of Law and Economics, University of Chicago Press, vol. 21(2), pages 297-326, October.
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