Market and welfare effects of marketing cooperatives in spatial procurement markets

Abstract Agricultural marketing cooperatives are widely viewed as a mechanism for mitigating oligopsony power in agricultural procurement markets. However, the welfare effects of cooperatives depend on how competing investor‐owned firms respond, and those responses vary with the strategic flexibility available to firms. This paper studies how spatial price discrimination and endogenous location mediate the market and welfare effects of cooperatives in spatial procurement markets. Using a structured counterfactual framework, we compare markets with only investor‐owned firms and mixed markets with both investor‐owned firms and cooperatives across four strategic environments defined by the availability of these strategic margins. We find that strategic flexibility generally attenuates the welfare gains generated by cooperative entry, particularly at low and intermediate transportation costs. This attenuation arises because strategic flexibility increases efficiency in benchmark markets with only investor‐owned firms, leaving less scope for cooperatives to improve market performance. Consequently, strategic flexibility and cooperative ownership emerge as partially substitutable mechanisms for improving procurement‐market performance. Cooperatives therefore deliver their largest welfare gains where competing firms face greater strategic constraints arising from regulation, technology, or physical limitations.