Endogenous Membership in Mixed Duopsonies

Abstract

Although the role of agricultural cooperatives is well known to many practitioners and economists around the world, in many countries cooperatives are facing new challenging opportunities and problems. Due to the consolidation in the industries upstream and downstream to the agricultural sector, cooperatives are regarded as one possible way to enhance welfare for small producers (Economist). Either in the form of common facilities or through collective bargaining, cooperatives have the potential to improve the terms of trade for their members and contribute to better livelihood in rural areas. However, cooperatives are also facing new difficulties, due to the globalization of markets and the competition with investor-owned firms (IOF). In many countries, ideology is no longer a strong enough reason for farmers to join cooperatives, and more competitive markets imply that this decision must be based mainly on economic terms. In addition, cooperatives have to deal with heterogeneous membership: members may differ in many aspects, namely size of their operations, abilities, and quality of their products. Given these differences, the functioning of the cooperative in the day-to-day operations may become more difficult, and some members may find it more convenient to look for other opportunities and market outlets for their commodities.