Cooperatives as Entrants

Richard J. Sexton and Terri A. Sexton

RAND Journal of Economics, 1987, vol. 18, issue 4, 581-595

Abstract: A potential shortcoming of game-theoretic models in industrial organization is their failure to consider consumers as players. We introduce a customer coalition --- a cooperative -- as a potential entrant and compare the cooperative entry threat with that posed by the usual for-profit entrant. We identify four fundamental distinctions between cooperative and for-profit entrants and demonstrate that the strategic interplay between a cooperative and an incumbent firm may differ markedly from that between the incumbent and a for-profit entrant. The results impart a prospectively powerful role to potential cooperatives in beneficially regulating free-market performance.

Date: 1987
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