Agribusiness Cooperatives vs. Investor-Owned Firms: A Nash Equilibrium Analysis

Overview of the Paper Under Review

One Player Games vs. Two Player Games: Comparing Agribusiness Cooperatives with Investor-Owned Business Models presents a unique and fresh perspective on the reasons why agribusiness enterprises choose to utilize the cooperative business model as opposed to an investor-owned business model. The author's fundamental question is what makes the cooperative form unique and desirable to agribusiness and rural enterprises in the absence of any widely recognized, accepted, or sufficiently utilized empirical evidence or scholarly study defining the rationale. In answering this question, the author relies on a distinction between cooperatives and investor-owned entities centered on two dynamics: the dichotomy between profit maximization and social welfare, and the recognition of cooperative users and owners as filling traditionally contrary roles as one economic agent.

In developing an econometric model to test and explicate the differences in business forms, the author identifies the dual roles of the cooperative agent — owner and consumer — integrated into a single economic actor. By contrast, the investor-owned model is segmented into two disparate actors playing separate roles. In defining the model in this manner, the actors assume the familiar design concomitant with a classical Nash equilibrium: one- and two-player games. In analyzing the actions inside these games, the results highlight a defining differential characteristic between cooperatives and investor-owned enterprises. The economic actors inside the models do not pursue the same objectives, and as such the cooperative model is not an inefficient profit-maximizing firm but rather a social welfare-maximizing entity.

Comments on the Model and Results

The adoption of economic agents bifurcated into one- and two-player games for the purposes of identifying expected payoffs in a Nash equilibrium is a strength of both the model and the submission. Given the four equilibriums that follow from the use of a cardinally valued matrix within supply and demand analysis, the model predicts — using aggregated consumer and producer surpluses — the resulting payoffs under the Nash equilibrium.

The model develops four cardinally valued matrix options. The first is represented in Figure 1, which abstractly displays the aggregated payoffs in terms of their respective inequalities. Figure 1 provides some confusion for the reader in terms of its choice of profit maximization in the two-player game; however, the author significantly assists the reader in Figure 2 by assigning numeric values to the payoffs, which provides a concreteness previously unavailable. Figures 3 and 4 further develop the payoffs under the one- and two-player models and yield several key conclusions. First, the one-player game as defined by investor-owned firms will choose profit maximization — an initially unexpected conclusion — but its importance lies in its opposed diametric: two-player games produce economic agents in a cooperative pursuing aggregate surpluses coinciding with social welfare. Second, the distinction in the resulting equilibriums is the defining difference between the cooperative and the investor-owned model.

The economic model is well thought out, but at times the discussion glosses over important distinctions that might provide greater clarity in the analysis. For example, a more detailed setup of the use of the cardinal variable and the neoclassical inequality assumptions might allow the reader to better grasp the model's conclusions in Figures 3 and 4. The author is at their best when they succinctly lay out the expected and actual results of the aggregate outputs under the Nash equilibrium and their extrapolated meaning for the business models. On page 12, the author clearly states the differences of profit maximization in two-player games and the social welfare maximization found in one-player games.