COOPERATIVES (COOPs) AND

INVESTOR OWNED FIRMS (IOFs)

By Molnar Abigail Eniko

Cooperatives and investor-owned firms (IOFs) are alternatives forms business

organization operating in the same economic system and performing similar functions.
Cooperatives such as IOF's, buy, sell and produce goods and services, but cooperatives, unlike
IOFs, aims to provide a service to their members' clients, rather than gain a return on investment.
Agricultural cooperatives buy the agricultural products of their members and distribute
them in the final on the market, usually after processing the product. As economic institutions,
they are in many ways different from IOF. The main differences relate to funding, management,
patronage rebate and the organization's objectives. A cooperative is, like IOFs, the property of
investors, but these investors are also members of the cooperative, which means that they are the
users and managers of the company.
The main goal of an IOF is usually to maximize profit. Maximum profitability to
members would be the equivalent goal of a cooperative
The cooperative could be seen as internalizing the production costs of members, which
distinguishes it from an IOF. It just doesn't matter what you buy raw material as part of the cost
to the company, because it is the income of members, owners. If the main objective of the
cooperative is the total profitability to its members, it would maximize the income that the
members generate from the sale of their products through the cooperative, as well as the profits
from the cooperative operations. Therefore, because the objectives of a cooperative differ from
those of an IOF, their behavior may also be different. In turn, this can have important
implications when the two types of economic agents compete in the market. The way
cooperatives interact in the market with IOFs is an important aspect of them function, especially
in market situations characterized by imperfect competition.
Often, agricultural cooperatives were formed in response to market failure, to
counterbalance the power of monopsony or oligopsony in the processing sectors. Agricultural
markets are often oligopsonyst, due to high transportation costs that limit farmers' access to
buyers and due to farmers' investments in sunken assets, which creates barriers to exit. If farmers
they own their own processing company and manage it as a cooperative, they can keep the
market margins otherwise owned by private processors. This should have the effect of both
increasing member revenues and pushing IOFs to more competitive prices. ("Competitive
measuring effect") This positive role attributed to the cooperative was often used as an argument
for continued governance support for agricultural cooperatives.
 The aim of the cooperative is to maximize the surplus for any given level of gross
income, which implies that the cooperative will produce more and pay a higher price than the
IOF and therefore have a beneficial impact on farmers' income levels. . Cooperatives have a
positive effect on revenue, one is that there are market margins that need to be maintained, either
because the market is not in equilibrium or because there are oligopsonyst tendencies in the
market.
An membership cooperative will continue to increase the level of production by
purchasing more coffee until the average income product is equal to the price paid to the
members, until the profits of the cooperative are eliminated. Under these conditions, an IOF
competing with an open cooperative will either have to pay the same price level as the
cooperative or will have to close. If they offer a lower price level, non-members will be better off
turning to the cooperative for membership.
IOFs and open cooperatives coexist. Market descriptions with IOFs and open
cooperatives conclude that open cooperatives have a stronger pro-competitive effect than
cooperatives that restrict membership, but open cooperatives generate lower revenues on behalf
of their members than cooperatives that maximize total profitability by restricting membership. .
A cooperative will usually differ from an IOF because it offers members certain benefits.
These could include a closer location, public authorities lobbying, services such as credit
schemes, education, purchasing inputs for production or organizing the joint production of
collective goods, such as roads, schools and so on. The membership level will depend on how
the producers appreciate these benefits.
Examples of costs of cooperative membership are taxes, specific production requirements
and mandatory cooperative meetings. A membership fee implies that the sale to the cooperative
generates less income for non-members than for members, so there is price discrimination. This
means that if the cooperative management does not want the membership level and deliveries to
increase beyond the income maximization level, a sufficient increase in the membership fee
would cause potential new entrants to turn to the IOF. The cooperative is the still open to new
members, but due to the membership fee, entry will be limited to the most eager or the richest
producers. Obligations are not necessarily defined as a cost. Those who perceive meetings as a
cost are less likely to become members than those who perceive it as a benefit. Another cost of
membership, but is not voluntarily applied by the cooperative's management, is late payment.
Late payment implies that many farmers will choose immediate payment from the IOF, although
it may be lower. Their choice will depend on their economic situation and how precarious it is
and how they appreciate it immediately, compared to late consumption. In general, we would
assume that the longer the delay, the less attractive the cooperation.
A subsidy to the cooperative can influence the price level of the cooperative and of IOFs.
 In an oligopsonistic market, an agricultural cooperative may have a positive impact on
farmers' welfare by increasing the general level of prices. But this effect will be reduced or even
eliminated if the cooperative is less efficient than the IOFs it competes with.
In order to provide a relevant comparison of the performance of cooperatives with IOF
analysts, the interest of business owners should be taken into account. The main conclusion is
that cooperatives and IOFs need different tools to assess their performance, comparing the
performance of cooperatives with IOFs is not appropriate if the same approach is used assuming
the same objectives for both.
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