The concept of economies of size is crucial for the analysis of price and output equilibria for a marketing cooperative. If there are economies of size in processing, a cooperatively organized processing industry may be socially preferable when compared to an investor-owned processor with monopsony power. This study investigates whether cost structure can be used as an efficiency argument for the cooperative dairy industry in Sweden. The results indicate economies of size in milk processing and, accordingly, marketing cooperatives appear to be a socially efficient form of business organization.
