THE EFFECT OF MARKETING COOPERATIVES ON COST-REDUCING PROCESS INNOVATION ACTIVITY

This paper examines the market and welfare effects of cooperative involvement in cost-reducing process innovation activity in the context of a mixed oligopsony where an open-membership marketing co-op competes with an IOF. The presence of the marketing co-op is shown to result in increased producer prices and welfare gains for all farmers, members and non-members of the co-op. The effect of the marketing co-op on process innovation activity depends on the relative quality of its final products, the degree of producer heterogeneity, and the size of innovation costs.