Cooperative pricing and scale efficiency: The case of Korean rice processing complexes

Unlike most investor-owned enterprises, cooperatives often have freedom to choose among a variety of firm objectives. Using 20022008 plant- and province-level data, we ask in the present article which of several alternative maximands a Korean cooperative rice processing firm pursues. In contrast to earlier studies, farmer-member supply functions are incorporated into the cooperative's optimization framework. We show that only large cooperative firms have operated at efficient scale, while small and medium-sized ones have been scale-inefficient. Because the latter operate where scale returns are increasing, mergers of small and medium-sized cooperatives likely would be cost-reducing and member-return-enhancing.