Consumer cooperatives as a new governance form : the case of the cooperatives in the broadband industry

Since Williamson’s semi-final paper (1975) on governance forms in a market economy, a growing number of studies have focused on new forms of governance, but research seems to have neglected consumer cooperatives despite their growing importance in some sectors of the economy. With an increasing emergence of consumer cooperatives in industries such as electricity generation or broadband telecommunications, however, there is a need to study the specific structure and function of consumer cooperatives in the market economy. In the literature, the growth of consumer cooperatives has been attributed to problems of market failure in conjunction with high risk and uncertain investment. In order to examine incentives for consumers to join a consumer cooperative, we make a distinction between different types of risks and benefits. The evolution of broadband markets in the Netherlands provides an interesting example to examine the function and structure of local cooperatives in a dynamic market. In the paper, we analyze the incentives of 759 consumers to opt in favor of setting up of a cooperative aimed at providing broadband services via a fiber network. We found that the risks associated with creating cost-efficiencies and switching cost are important determinants for consumers to join a cooperative. In addition, benefits expected from consumers with respect to user network externalities and indirect gains derived will affect the probability of consumers to join a cooperative.