One Player Games versus Two Player Games: Comparing Agribusiness Cooperatives with Investor-Owned Business Models

Cooperative business firms are prevalent in agribusiness, yet no concise generalizedmodel exists to demonstrate how and why cooperative firms differ from, and may beselected over, the more common investor owned business firm. It is shown within ageneric transaction game that cooperatives fill both producer and consumer roles as anaggregated player that is expected to maximize aggregate producer and consumer payoffsrather than maximizing either payoff separately, which contrasts with investor ownedfirms as essentially two player games between separate and competing producers andconsumers where each player seeks to maximize their separate payoff individually. Acardinally valued game theoretic matrix is used to demonstrate the expected differencesbetween these one-player versus two-player games, which clearly demonstrates thatcooperatives are expected to achieve greater total payoffs and social welfare relative toinvestor owned firms, because investor owned firms generate dead weight loss whenmaximizing producer surpluses as expected under prevailing microeconomic theory. Theuse of cardinal payoff values rather than ordinal is important because it permitsaggregation of payoffs within the model, and because it directly reflects the cardinalpayoffs actually used in agribusiness decisions, such as revenue, expense and profitmeasures. The results may indicate the reason that cooperative firms are selected andhave been successful in agribusiness. However, weaknesses of the cooperative model arealso discussed, conjecturing that cooperatives may be preferable to investor ownedbusinesses under limited circumstances but because these circumstances occur frequentlyin agribusiness the cooperative model is observed more frequently there.