Korpeoglu, CG; Körpeoğlu, E; Tang, CS; Yu, JJ; (2020) Entry of Not-for-Profit Food Cooperatives and Its Implications on For-Profit Retailers. SSRN: Amsterdam, Netherlands.

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Abstract

Propelled by the recent social activism that calls for not-for-profit food cooperatives (coops) to address the food desert and job desert issues, more food coops are establishing their presence in less-populated areas or poor communities. This trend has motivated us to examine the entry conditions for food coops with the following two related social missions: (A) maximize reserve to support the local community needs; and (B) maximize sales to support the local economy. We present a game-theoretic model to analyze the competition between an entrant not-for-profit coop and an incumbent for-profit retailer in a market comprising heterogeneous consumers with different annual consumption rates and social benefit levels. We examine the coop's pricing strategy and entry conditions, the impact of the coop's entry on the retailer's profit, and the conditions under which the retailer should deter the coop's entry. Our analytical results indicate that a coop can afford to enter the market only when its fixed annual operating cost is below a certain threshold. Upon entry, it is optimal for the coop to set a membership fee and a member-only discount to attract at least those consumers with high consumption rate. We show that the coop’s entry is detrimental for the retailer. However, interestingly, even if the retailer can profitably deter the coop’s entry, it is actually optimal for the retailer to tolerate it when the coop's annual fixed operating cost is below a threshold, where this threshold is lower for a coop with mission (B) than mission (A).

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