What are the three co-op pricing strategies
Average
Maximum/Minimum
Optimal
How to members receive their economic benefit with average pricing?
At point of sale
No profits
How do members receive their economic benefit with maximum/ minimum pricing?
At point of sale
No profits
How did the CWB deal with organic products?
Organic farmers had to sell to CWB first, then buy back (at a higher price) and market it themselves.
What were the two most important roles of the CWB?
Guarantee advance payments
Single-desk seller into international markets
How did grain co-ops make their money after CWB?
Elevation and the associated services (mixing, grading, drying, etc.)
How do we set up supply management?
- close off or restrict imports (keep trading partners happy by basing it on current imports)
- figure out average cost of production and set price there
- make it illegal to sell the good without having quota
- set up regional quotas based on historical production patterns
What is import rent?
When a company has an import quota, they can bring a supply managed product into the country for the cheaper world prices, then they sell it into a restricted domestic market where prices are artificially high.
When relaxing import quota, what happens?
- domestic prices come down
- which means prices may go below cost of production
- those with the additional import quota may decide not to use it because it could eat into their profits.
How do new importers of a supply managed good get into the business?
It’s really difficult, and they have to pay high prices and wait long times for existing quota, and this forms a massive barrier to entry.
What do we need in order for a co-operative oligopoly (not a co-op) to exist?
- firms must agree to restrict output
- low expectation of punishment
- steep demand curve
- low organizational costs
- few firms
- homogeneous product
What are the characteristics of a non-cooperative oligopoly?
- consumers are price takers
- homogeneous product
- No entry
- firms collectively have market power
- price set by market
- firms only set quantity
- IOFs: MR = MC
Why are cartels unstable?
Payoff for over-producing in an inflated market is high.
What is a Cournot game?
- Game theory used for Q since P not changeable
What is a Bertrand game?
Price games - need differentiated product
What happens in a homogeneous product oligopoly when a co-op enters?
Co-op sets price at P = MC, and will pick up as much of the market as they can handle, the rest will go to IOFs (at higher price). If co-op can handle whole market it will.
What are the three models of equity payment for co-ops?
Revolving Fund
Percentage of All Equities
Nonsystematic
What is the Revolving Fund model?
Regular patronage payments.
Regular payments of equity refunds after an investment period.
Final payment of member’s equity at the end.
Receive payment of initial equity at retirement.
What is the Percentage of All Equities model?
Regular patronage payments.
Cash equity refunds throughout.
On retirement or death refund of remaining accumulated equity and initial payment.
What is the Nonsystematic model?
Regular cash patronage payments.
Refund entire member’s accumulated equity and initial equity on retirement or death.
What’s unique about New Generation Co-ops?
Membership is closed.
Can have non-member investors, who receive dividends based on amount of their investment.
Members have to purchase delivery rights (if applicable).
High initial equity investment for members.
Tradable equity with board approval.
How are delivery rights priced in a NGC?
Total amount of required capital divided by units of processing capacity.
What are delivery rights shares?
- preferred share for members only
- non-voting
- delivery contract
- patronage/ retained equity
What kinds of shares are issued by a NGC for member investment? Characteristics?
Common shares
- members only
- issued and redeemed at par
- dividends
- property on dissolution
