The Performance of Agricultural Marketing Cooperatives in Differentiated Product Markets

Recent empirical work suggests that cooperative presence in differentiated product marketslowers the consumer prices of all brands. This paper focuses on the theoretical basis forthis competitive yardstick effect by cooperatives. It identifies two market structures where thecompetitive yardstick theorem for cooperatives can be extended from farmer-first handlermarkets to differentiated consumer product markets. They are (1) oligopoly with significantbarriers to entry and (2) monopolistic competition with entry but only non-price competition.In the latter, the cooperative can also ensure that the socially optimal number of brands (productvariety) is provided by the industry. The theory also provides useful guidance for determiningwhen supply-limiting conduct in differentiated product markets should be challengedas undue price enhancement under the Capper-Volstead law.