Mergers of Consumer Cooperatives

Consumer cooperatives are consumer-owned and managed enterprises that aim to achieve buyer power and maximize their members’ welfare. Recently, several cooperatives in major economies, such as the United Kingdom (UK) and Italy, have merged to increase their buyer power and achieve better prices for their members. We seek to understand how these mergers affect strategic interactions among

supply chain players, market outcomes, and consumer welfare. Methodology/results: We build a gametheoretic model of a two-tier supply chain where multiple consumer cooperatives procure a product from a market on behalf of their member consumers. Multiple suppliers produce for this market and can increase their supply by incurring a scale-up cost. We show that mergers of cooperatives reduce the market price, as intended. This enables consumers to allocate more of their income to purchasing other goods. However, the

lower price also induces suppliers to reduce their production quantities, thereby causing each consumer to receive less of the supplied product. We find that this underproduction is even more pronounced in industries with low production scale-up costs. Due to this tradeoff between lower prices and underproduction, mergers of cooperatives make a nuanced impact on consumer welfare. We show, interestingly, that mergers harm both member and non-member consumers when the pre-merger number of cooperatives or the production scale-up cost is below a certain threshold. Otherwise, mergers benefit all consumers. We expand our results by considering horizontal and vertical differentiation among cooperatives and show that our main results are robust and that more differentiation increases the benefit of mergers. Managerial implications: Mergers of cooperatives make a nuanced impact on consumer welfare due to their effects on prices and production incentives. Policymakers should maintain healthy competition among cooperatives to maximize consumer benefits, especially in markets with low production scale-up costs.

This seminar will take place in person in room T09-67. Alternatively, click HERE or use the information below to join via Zoom.

Meeting ID: 932 2256 6865

Passcode: 986439