Platform Cooperatives And The Network Effect Dilemma

Imagine two remote villages on an island with both having enough demand to only sustain one grocery store. The residents of both villages can only access the village store. In other words, the grocery store has a monopoly. In the other village, the grocery store is run as a cooperative owned by the residents, whereas in the other there is a single shop owner who owns the store.

Which one of these stores will act in the interest of the consumers?

For the one owned by a single shop owner, the incentive is to raise the prices as much as possible. For the store owned by the residents, the managers have an incentive to lower the prices as much as possible, or the residents will vote a new board of directors that will do so.

Cooperatives are also widely used to fix a reverse market failure of a monopsony, where there is only one buyer. The producers can join together as a producer cooperative and refuse to sell their goods below a certain price. This helps explain why we see massive producer cooperatives, such as Amul, the largest food brand in India owned by around 3.6 million milk farmers.

Source: Platform Cooperatives And The Network Effect Dilemma

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