Organizational commitment in a mixed oligopoly: Agricultural cooperatives and investor-owned firms

The purpose of this article is to examine the issue of member commitment in the context of a mixed oligopoly where co-ops and investor-owned firms (IOFs) complete with each other in supplying a consumer good.(1) The development of a mixed oligopoly model and the focus on member commitment are closely linked. A mixed oligopoly is one in which the different firms operating in the industry have different objective functions. Thus, in a mixed oligopoly, there is a general presumption that consumers perceive these organizations differently. The basis of the oligopoly model developed in this article is that the people purchasing the consumer good explicitly differentiate between the co-op and the IOF. The degree to which the co-op is differentiated from the IOF is a measure of member commitment. The source of the member commitment is the perceived quality of the co-op. The quality of the co-op organization is perceived to be high when, ceteris paribus, the consumers purchasing from the co-op (i.e., co-op members) believe that the co-op is operating on their behalf. Quality is perceived to be low when the members believe that the co-op is not operating in their interests. The article is structured as follows. The next section presents a simple theoretical model of a mixed duopoly in which consumers differ in their attitudes toward co-ops and IOFs. The consumer preference for doing business with the co-op (i.e., member commitment) is initially assumed to be exogenous. The article then outlines how member commitment can be made endogenous. The article ends with a discussion of the implication of the model for understanding the challenges currently faced by co-ops.