Producer cooperatives influence on competitive dynamics: the Azorean case

The aim of this paper is twofold: first, I aim at understanding how producer cooperatives compete in the factor markets; and second, I analyse how producer cooperatives influence the competitive dynamics of the markets where they compete. With this paper we aim at bringing a strategic perspective of this phenomenon. This paper follows a single case study qualitative analysis. The empirical context is the dairy market of the Azorean island Sao Miguel (in Portugal), more specifically, the milk factor market. This empirical context is adequate for the following reasons: first, because it is possible to isolate the market and its players in a quasi-experimental fashion (because it is a island); second, it presents a stable cooperative tradition; and third, cooperatives compete side-by-side with private firms (the cooperative Union represent 50% of the factor dairy market and the 3 other private firms represent the remaining 50%). The main data sources were local newspaper articles (322 in total) and interviews (31 in total with all market players). The data was coded in different categories, such as players’ characteristics, strategic positioning, strategic moves, and context/external shocks. The results reveal that on the factor market side, as buyer, the cooperative presents a “proudly first” positioning. This buyer positioning reflects the effort of the cooperative to always set the higher price and the best conditions on the factor market. This positioning contrasts with other private players that have adopted “Please stay” and “I don’t care” positioning. The results have also point out that the increase of the cooperative market share in the factor market, is leading to increased market competition. There is evidence that the cooperative is driving up the total number of strategic moves in the market that were predominantly oriented to price increases. On the theoretical part, some interesting inputs emerged on the concept of buyers strategic positioning. The results also challenge competitive dynamics studies, which defend that when the concentration in the market increases, the competitive activity decreases. Surprisingly, I have observed the opposite effect and I argue that is due to the cooperative influence. Additionally, the paper defends that producer cooperatives are able to drive factor market competition in markets where there are severe asymmetries of power. Such studies can increase our knowledge about the local impact of cooperatives and the circumstances under which cooperatives are an efficient alternative to the public and private sectors.