Abstract
We study whether and when cooperation among consumers is beneficial to consumers when producers have market power. We refer to cooperation of consumers as and gauge how the size of these coalitions affects consumers. To this end, we construct an imperfect competition model that considers market power of both producers and consumer coalitions. We establish, contrary to a first intuition and the prior literature, that consumer welfare decreases with coalition size when the coalition size is above a certain threshold. We also prove that a larger coalition size discourages production capacity expansion, which has repercussions for long-term consumer welfare. Finally, we show that fostering competition among producers can be more effective in promoting consumer welfare than having consumer coalitions.
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