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Abstract
Cooperative business firms are prevalent in agribusiness, yet no concise generalized
model exists to demonstrate how and why cooperative firms differ from, and may be
selected over, the more common investor owned business firm. It is shown within a
generic transaction game that cooperatives fill both producer and consumer roles as an
aggregated player that is expected to maximize aggregate producer and consumer payoffs
rather than maximizing either payoff separately, which contrasts with investor owned
firms as essentially two player games between separate and competing producers and
consumers where each player seeks to maximize their separate payoff individually. A
cardinally valued game theoretic matrix is used to demonstrate the expected differences
between these one-player versus two-player games, which clearly demonstrates that
cooperatives are expected to achieve greater total payoffs and social welfare relative to
investor owned firms, because investor owned firms generate dead weight loss when
maximizing producer surpluses as expected under prevailing microeconomic theory. The
use of cardinal payoff values rather than ordinal is important because it permits
aggregation of payoffs within the model, and because it directly reflects the cardinal
payoffs actually used in agribusiness decisions, such as revenue, expense and profit
measures. The results may indicate the reason that cooperative firms are selected and
have been successful in agribusiness. However, weaknesses of the cooperative model are
also discussed, conjecturing that cooperatives may be preferable to investor owned
businesses under limited circumstances but because these circumstances occur frequently
in agribusiness the cooperative model is observed more frequently there.