Antitrust, Marketing Cooperatives, and Market Power

Marketing cooperatives are common in agricultural markets. This article explores their price and welfare effects and relates to antitrust legislation in the United States, the European Union, and some of the EU member states-in particular, Sweden. Welfare is higher with a monopoly cooperative than with a profit-maximizing monopoly, if the scope for price discrimination is small and if the world-market price is low relative to the domestic price. As the world-market price rises (or as price discrimination becomes more important), the welfare effect is reversed. The price-discrimination effect suggests that, as a marketing cooperative integrates vertically, welfare may fall. These results carry over to a duopoly with a cooperative firm and a profit-maximizing firm. In such a duopoly, the cooperative behaves more aggressively and obtains a larger market share. Empirical evidence supports these conclusions.