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Evaluating the procompetitive effects of farmer cooperatives and public firms in imperfectly competitive markets: A simulation analysis
Abstract
The primary objective of this study is to model the activities of investor-owned firms (IOFs), cooperatives, and public firms in imperfect markets and observe the effects each of these types of firms has on the performance of these markets. A public firm is owned and controlled by the government. Literature generally supports public firms as procompetitive market forces, contingent on assumptions of the particular model. Classic cooperative literature reveals a controversy involving the procompetitive power of cooperatives with different membership structures. The markets in this study involve producers of a raw product who sell to a processor. The processor transforms the raw product into a processed product that is then sold to consumers. Processors can be IOFs, cooperatives, or public firms. Cooperatives attempt to maximize the economic welfare of their members, while public firms attempt to maximize the welfare of the entire economy. The existence of cooperatives or public firms is expected to have a procompetitive effect on the market. To test the existence of this effect, an oligopoly/oligopsony model is developed that initially consists entirely of profit-maximizing processors. Various scenarios are developed by successively replacing investor-owned firms with cooperative or public firm processors. Several behavioral assumptions, including the conjectural variations of each type of firm, are used to determine the impact of a firm's output decisions. Through simulation analyses on the models developed, it was determined that the existence of a competitive yardstick effect is not universal in models involving cooperatives and public firms. Models involving cooperatives that are able to set the quantity of raw product they process were most likely to tend toward a competitive equilibrium when IOFs and cooperatives hold Bertrand conjectures about cooperatives. Cooperatives that do not or cannot limit the quantity they process enhance market performance, except under an assumption of Cournot conjectures. In most scenarios, the existence of public firms enhances market performance. However, sometimes their existence had no effect at all.
Subject Area
Agricultural economics|Agriculture|Economic theory
Recommended Citation
Hoffman, Susan Helen, "Evaluating the procompetitive effects of farmer cooperatives and public firms in imperfectly competitive markets: A simulation analysis" (1997). ETD collection for University of Nebraska-Lincoln. AAI9815890.
https://digitalcommons.unl.edu/dissertations/AAI9815890