Takeovers and cooperatives: governance and stability in non-corporate firms
Journal of Economics
If consumers wholly or partially control a firm with market power they will charge less than the profit maximizing price. Starting at the usual monopoly price, a small price reduction will have a second order effect on profits but a first order effect on consumer surplus. Despite this desirable static result, it has been argued that cooperatives are vulnerable to take-over by outsiders who will run them as for-profit businesses. This paper studies takeovers of cooperatives. We argue that there will not be excessive takeovers of cooperatives due to the Grossman-Hart problem of free riding during takeovers.
Research in part supported by ESRC grant RES-000-22-0650.
Author's draft dated 11 January 2010. Final version published in Journal of economics available online at http://www.springerlink.com/
Journal of Economics 2010, 99 (3) p.193-209