Mergers of Consumer Cooperatives

Research output: Working paperAcademic

Abstract

In this paper, we analyze the impact of mergers of consumer cooperatives on consumers. We build a game-theoretic model of a supply chain where multiple suppliers produce a product to maximize their profits subject to capacity constraints, and multiple consumer cooperatives procure this product at the quantity that maximizes their member-consumers' utilities. We show that as consumer cooperatives merge and the number of cooperatives decreases, each cooperative's buyer power increases, and hence the market price decreases. Despite driving the market price down, interestingly, mergers of consumer cooperatives do not always benefit consumers. Specifically, consumer utility is unimodal in the number of cooperatives, so there is an optimal number of cooperatives. This is because when the number of cooperatives is below a certain threshold, suppliers reduce production too much, and this in turn harms consumers. Therefore, although consumer cooperatives aim to benefit consumers, they may end up harming consumers when they merge "too much." The only exception to this result is when suppliers have tight capacities, in which case consumers always benefit from mergers of cooperatives. More generally, we show that the optimal number of cooperatives is non-decreasing in suppliers' production capacity.
Original languageEnglish
Publication statusSubmitted - 2020

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