Recent empirical work suggests that cooperative presence in differentiated product markets
lowers the consumer prices of all brands. This paper focuses on the theoretical basis for
this competitive yardstick effect by cooperatives. It identifies two market structures where the
competitive yardstick theorem for cooperatives can be extended from farmer-first handler
markets to differentiated consumer product markets. They are (1) oligopoly with significant
barriers to entry and (2) monopolistic competition with entry but only non-price competition.
In the latter, the cooperative can also ensure that the socially optimal number of brands (product
variety) is provided by the industry. The theory also provides useful guidance for determining
when supply-limiting conduct in differentiated product markets should be challenged
as undue price enhancement under the Capper-Volstead law.
