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Journal of Agricultural & Food Industrial Organization

Ed. by Azzam, Azzeddine

2 Issues per year

CiteScore 2016: 0.70

SCImago Journal Rank (SJR) 2015: 0.189
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Ownership Structure and Endogenous Quality Choice: Cooperatives versus Investor-Owned Firms

Ruben Hoffmann
  • Department of Economics, Swedish University of Agricultural Sciences
Published Online: 2005-12-06 | DOI: https://doi.org/10.2202/1542-0485.1098

This paper examines how ownership structure affects endogenous quality choice and the subsequent equilibrium outcomes. Investor owned firms (IOFs) and producer cooperatives (COOPs) are analyzed within a duopoly framework including a primary and a secondary level. The firms play a two-stage game, first simultaneously choosing the level of quality to produce and then compete in prices. It is shown that if the cost of quality at primary level is fixed, and/or variable exhibiting non-constant returns to scale, firms can have a structural cost advantage due to ownership structure in addition to the high-quality advantage identified in the previous literature.In the case of a fixed cost of quality at primary level, it is shown that although IOFs charge higher prices they generate a larger consumer surplus than COOPs by marketing higher qualities. Cooperatives generate a larger producer surplus while the market share of the high-quality good is independent of ownership structure. In the case of a variable cost of quality at primary level, a cooperative firm possesses a structural cost advantage which is used to market larger quantities of higher levels of quality generating larger profits, larger consumer surplus and larger social welfare. Policy implications of the different structures are discussed.

Keywords: Ownership Structure; Cooperatives; Quality Choice; Endogenous Quality; Duopoly

About the article

Published Online: 2005-12-06

Citation Information: Journal of Agricultural & Food Industrial Organization, ISSN (Online) 1542-0485, DOI: https://doi.org/10.2202/1542-0485.1098. Export Citation

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