Entry of Not-for-Profit Food Cooperatives and Its Implications on For-Profit Retailers

43 Pages Posted: 26 Oct 2020 Last revised: 31 Dec 2020

See all articles by C. Gizem Korpeoglu

C. Gizem Korpeoglu

Eindhoven University of Technology

Ersin Körpeoğlu

University College London - School of Management

Christopher S. Tang

University of California, Los Angeles (UCLA) - Anderson School of Management

Jiayi Joey Yu

Fudan University - School of Management

Date Written: August 30, 2020

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).

Keywords: Food deserts, Food cooperatives, Not-for-profit operations, Social conscience, Social mission

JEL Classification: M19

Suggested Citation

Korpeoglu, C. Gizem and Körpeoğlu, Ersin and Tang, Christopher S. and Yu, Jiayi, Entry of Not-for-Profit Food Cooperatives and Its Implications on For-Profit Retailers (August 30, 2020). Available at SSRN: https://ssrn.com/abstract=3683380 or http://dx.doi.org/10.2139/ssrn.3683380

C. Gizem Korpeoglu

Eindhoven University of Technology ( email )

PO Box 513
Eindhoven, 5600 MB
Netherlands

Ersin Körpeoğlu

University College London - School of Management ( email )

1 Canada Square Canary Wharf
London, E14 5AA
United Kingdom

Christopher S. Tang

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

Jiayi Yu (Contact Author)

Fudan University - School of Management ( email )

670 Guoshun Road
Shanghai, Shanghai 200433
China

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