Cooperative Supply Chains in Peace and at War

In the competition between supply chains, governance structure and coordination mechanisms can be as important as cost-efficiency. Flexible and non-committing contracts among upstream suppliers in cooperative alliances may lead to lower chain surplus through internal competition and renders the coordinator's position vulnerable for hostile take-overs. Cooperative supply chains are found in e.g. food industry, banking services, lawfirms and brokerage. The downstream processing or brand is owned collectively by the suppliers or service-providers. The supplier are linked to the chain by strong delivery (channel) rights and volume-based revenue-sharing schemes. The governance is flexible, promotes entry and market expansion. However, the decentralized decision making comes at a cost in terms of chain performance and resilience. A dynamic two-chain model with a captive and competitive market addresses the particular situation where the competing chain aggressor has a cooperative governance structure. The overt aggression at merger may have more to do with shortcomings in the managerial incentive structure than with the pursuit of market power. The results from the dynamic game is illustrated with empirical findings among dairy cooperatives in Denmark.

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Unit of Economics Working Paper 2000/8

 Record created 2017-04-01, last modified 2018-01-21

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