Takeovers and cooperatives: governance and stability in non-corporate firms
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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.
KeywordsCorporate governance Cooperative Take-over Free-rider Externality
JEL ClassificationD70 L20
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