Cooperatives as Entrants

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Richard J. Sexton ; Terri A. Sexton (1987)
  • Journal: RAND Journal of Economics, volume 18, issue 4 Winter, pages 581-595

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.
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