Horizontal mergers of marketing co-operatives

Résumé

Co-operatives play an important role in the European economies. Lately, several large co-operatives have merged. From a competition policy perspective it is important to understand the consequences of such mergers. The paper addresses the following question. 'What happens to prices and welfare if two marketing co-operatives merge?' We set up a model with two co-operatives facing two markets with decreasing demand. The farmers have a free right to deliver their production to the co-operatives. Hence they make individually optimal decisions without internalising the effect on their fellow members of the co-operative. We then merge the two co-operatives and analyse the effect of this on welfare. The results of the paper show that after the merger, each farmer starts to produce more. Consumer surplus may increase in one of the markets but still total consumer surplus and welfare decrease. The co-operative might choose to dispose of some of the farmers' production which in turn is very inefficient for society.