Capital Procurement of a Consumer Cooperative: Role of the Membership Market
University of Hyogo
Economic Systems, Vol. 34, No. 2, 2010
Cooperative firms are commonly thought to be financially weak and unable to flourish in the market economy. This paper addresses the idea that a consumer cooperative issues a membership, which represents an ownership share in the cooperative, as a method of procuring equity capital. It then shows that, in theory, consumer cooperatives are not necessarily financially weaker than investor-owned firms in the presence of a membership market. This implies that the consumer cooperative is potentially a promising alternative to the investor-owned firm when the latter type of firm induces serious market failure in the product market.
Keywords: Consumer cooperative, Capital procurement, Membership market
JEL Classification: P13, P51
Date posted: July 30, 2011