ABSTRACT
Cooperative firms play a significant role in many sectors of the U.S. economy. Revenues of farmer co-ops surpassed $100 billion in 1996. Using cooperative cost of goods sold, marketing co-ops handled 28 percent of U.S. commodity output in 1996 (USDA/RBS 1998). Traditionally, co-ops served an economic role by adding discipline to the marketplace. For example, farmers who are integrating their product upstream or downstream work together to protect themselves from monopoly market conditions (Sexton 1986b). In such instances, overall social surplus is reduced as monopoly prices diverge from competitive prices. The quantity transacted is also suboptimal. By joining together in a co-op, agents counter the monopolist "holdup" by forcing prices down. This increases quantities transacted and better allocates resources in the economy. Co-ops are, therefore, valuable entities for economies faced with poorly performing markets.
