On the Number and Membership Size of Consumer Managed Firms

Anderson, Porter, and Maurice [1] recently examined consumer-managed firms in utility-maximization framework. They derived conditions for optimum production, pricing, and membership size of the consumer cooperative from the individual member’s viewpoint, and related their results to the perfectly competitive firm. In this paper, their results are extended in a number of ways. First for the entire economy, the welfare-maximizing properties of the Anderson, Porter, and Maurice (APM) solution are shown to depend on the number of consumer cooperatives and the number of members in the cooperatives relative to the number of nonmembers. When only one cooperative is former, the APM solution may or may not yield an economy-wide welfare maximum in spite of the fact that each member is enjoying maximum benefits. Therefore, an alternative formulation is provided that ensures an economy-wide welfare maximum. Second, when multiple cooperatives form, the APM solution is likely to yield a welfare maximum, although the cooperatives may or may not be stable in the sense that members may continually have incentives to transfer amount the cooperatives.