The Formation of Cooperatives: A Game-Theoretic Approach with Implications for Cooperative Finance, Decision Making, and Stability

This paper departs from the traditional organization-oriented approach to cooperative analysis. It exploits cooperation's functional similarity to vertical integration to examine individuals' incentives to form cooperatives. A model of formation of a purchasing cooperative is presented and developed as an n-person game with the core as a solution concept. Core existence is examined for both single- and multiple-cooperative configurations, and cooperative finance methods are examined relative to finding core-compatible allocation rules. The results provide insight into a cooperative's equilibrium output, stability, decision making, financing methods, and choice of open or restricted membership.