Collective action via smallholder co-operatives is extensively discussed in the literature as an institutional solution to overcome market failures in developing countries. In some cases, however, the establishment of farmer groups incurs transaction costs that imply farmers may be better off not organizing. The success of collective action depends on the ability of individuals to make credible commitments and participation. Technical and human skills are also important for a group to succeed. In Ethiopia, co-operatives are actively promoted by the government to play a role in the agricultural sector. However, in the country in general and Tigray region in particular, the situation with co-operatives doesn't seem to be favorable for the full exploitation of the benefits of collective action: the majority of the co-operatives are established under the impulse of external partners without regard to the farmers' real needs and interests. Applying insights from game theory, this study examines the existence of economic incentives for farmers' collective action in the study area by testing for the condition of cost subadditivity in service provision. Findings show that costs would drop by 28.32 - 92.3% if farmers join hands in relatively big rather than small co-operatives. Acknowledgement : We are greatly indebted to VLIR UOS, Belgium for the financial support that made this article a reality.