Journal of Economic Behavior and Organization, Vol. 68, No. 1, October 2008
31 Pages Posted: 23 Jul 2009
Date Written: October 2008
The labor-managed Mondragon cooperatives in the Basque country, and La Lega coops concentrated in North Central Italy, are grouped into leagues that enable them to reap economies of scale in key services such as R&D, marketing and ﬁnance. These leagues are relatively rare and there are fewer than a dozen of them globally. We develop a game- theoretic model of league formation to capture some of the strategic incentives behind the formation of labor-managed cooperatives (coops) and their agglomeration into a league. We then compare these incentives with those of conventional proﬁt-maximizing ﬁrms to organize into a league. The main result of this paper shows that a divergence in these incentives stemming from their organizational differences may lead to the formation of a league of ﬁrms but not one of coops. This turns out to be true even though the coop has lower costs of production and the existence of a coop league would have been socially efficient. Anticipating the non-existence of a coop league then creates a disincentive for individual agents to form coops in the ﬁrst place. This explains the relative rarity of coops, competing individually or as a part of a league, with conventional ﬁrms in imperfect markets.
Keywords: Cooperatives, leagues, cartel formation, Mondragon, La Lega, Legacoop, labor-managed ﬁrms
JEL Classification: C72, O12, P13, D20, O52
Suggested Citation: Suggested Citation
Joshi, Sumit and Smith, Stephen C., Endogenous Formation of Coops and Cooperative Leagues (October 2008). Journal of Economic Behavior and Organization, Vol. 68, No. 1, October 2008. Available at SSRN: https://ssrn.com/abstract=1437748