Competition Rules and the Cooperative Firm

18 Pages Posted: 11 Jul 2013  

Michele Grillo

Catholic University of the Sacred Heart of Milan

Date Written: July 10, 2013

Abstract

This paper investigates whether and under what conditions the working of cooperative firms can be affected by competition law or market-enhancing regulations. The nature of collective benefits sought by different types of cooperative enterprises is analysed to show whether and how a tension may arise between the market mechanism and the mechanisms through which alternative collective benefits are attained by cooperative firms. On the whole, market-enhancing regulations have an ambiguous impact both on the working of cooperatives and on social efficiency. While benefitting society, a market enhancement reduces the scope for cooperative firms aiming at reducing the deadweight loss in imperfectly competitive markets. A similar conclusion holds if the cooperative firm aims at protecting an investment decision from a hold-up problem, provided that the market enhancement enlarges the set of outside options for the firm’s stakeholders. A market enlargement has a positive impact both on the working of cooperatives and on social efficiency when the aim of the cooperative firm is to prevent shirking in team production. In contrast, a negative impact ensues, with adverse consequences both for social efficiency and the cooperative firm, when the collective benefit sought by the latter is to overcome asymmetric information, as typically happens in the case of credit cooperatives.

Keywords: Cooperation, Cooperative Enterprises, Credit Cooperatives, Competition Law, Asymmetric Information, Relationship Lending

JEL Classification: G21, L31, L44

Suggested Citation

Grillo, Michele, Competition Rules and the Cooperative Firm (July 10, 2013). Journal of Entrepreneurial and Organizational Diversity, Vol. 2, No. 1, pp. 36-53, 2013. Available at SSRN: https://ssrn.com/abstract=2292389

Michele Grillo (Contact Author)

Catholic University of the Sacred Heart of Milan ( email )

Largo Gemelli, 1
Via Necchi 9
Milan, MI 20123
Italy

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