Co-operation and coordination in the Co-operative Retailing System : essays on economic and identity strategies
Uzea, Florentina Nicoleta
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This thesis, which consists of three self-contained essays, examines, both theoretically and empirically, some of the economic and identity strategies and mechanisms that federated co-operatives, in particular, and strategic alliances, in general, can use to achieve co-operation and coordination. To accomplish this objective, the thesis uses a combination of industrial organization and game theory concepts from economics, insights from social and cognitive psychology, and evidence from in-depth interviews with decision-makers in the Co-operative Retailing System (CRS) - an association of 264 independent Western Canadian retail co-operatives and their wholesaler, Federated Co-operatives Ltd. (FCL). Essay One combines a case study of the CRS with an examination, in a game-theoretic framework, of the co-operation and coordination problems arising among firms in alliances and the potential solutions to these problems suggested in the economics and business strategy literatures. One of the contributions of this essay is to provide examples of the mechanisms that can be used to implement these theoretical solutions in a business setting - i.e., the essay identifies practical ways for alliances to alter partner firms' payoffs, to provide private rewards, to monitor behaviour, to establish long term goals among partners, to build high group identification within the alliance, and to focus partners' expectations on the efficient outcomes. Another contribution of this essay is to identify some of the second-order co-operation problems that arise in strategic alliances - e.g., lack of incentives by alliance partners to contribute resources that are necessary to develop alliance management mechanisms - and to offer examples of the strategies that can be used to deal with these problems. Essay Two draws upon social identity theory and develops an economic model of behaviour to show how the core firm in a strategic network can promote effective co-operation among network members by inducing them to identify with the network. In addition, the essay offers empirical evidence from the CRS that identity has successfully been used, together with economic mechanisms, to foster co-operation among member retails, and provides examples of the most important mechanisms that FCL, as the core firm in the CRS, has used to manage the identity of the retails. More generally, by incorporating the psychology (and sociology) of identity into an economic model of behaviour, Essay Two contributes to an emerging view that non-economic (behavioural) factors are complementary to the economic ones in the management of strategic partnerships. Essay Three considers the collective action problems that arise in co-operatives when it comes to financing growth and identifies the conditions under which retained patronage can be an effective way for co-operatives to raise growth capital. The essay develops a game-theoretic model to examine the trade-off between the share of patronage refunds a co-operative wholesaler pays to member retails in cash and the share of patronage refunds it retains and invests, so as to provide retails with enough short-run benefits to encourage them to patronize their organization, while still retaining resources to invest in long-term growth. Analytical results show that when there are increasing returns in patronizing the co-operative wholesaler, retails' decisions to patronize their organization are complementary strategies and, as a result, multiple equilibria are possible. Some of these equilibria are ones with high patronage and high investment, while others are characterized by low patronage and low investment. Retails' expectations about the actions of their counterparts are critical in determining the prevailing equilibrium. The analysis also shows that the existence of the horizon problem further constraints the ability of the wholesaler to raise growth capital. Taken together, these results suggest that the retention of patronage refunds can be an effective way for the co-operative wholesaler to raise growth capital, provided it acts to focus retails' expectations on the 'good' equilibrium and to mitigate the horizon problem. By examining the strategies and mechanisms that the CRS has used to achieve co-operation and coordination, and in so doing illustrating the mechanisms that firms can use to manage partner opportunism and prevent coordination failure, the thesis contributes to the alliance management literature. Firms today are increasingly forming strategic alliances with suppliers, buyers, and even competitors in order to achieve sustainable competitive advantage. However, despite their increasing popularity and value-creation potential, alliances more often fail than succeed, with alliance failure often attributed to opportunistic (non-co-operative) behaviour by one or more of the partners and to coordination failure. As a result, it is important to identify strategies and mechanisms that alliance partners can use to achieve co-operation and coordination, and thus realize the benefits from their association. The thesis also contributes to the co-operative literature by shedding light on the age-old debate on whether federated co-operatives need to be centralized to ensure efficiency. In particular, the thesis shows that federated co-operatives can be efficient, provided they address the co-operation and coordination problems that arise among their members, and provides examples of the mechanisms that federated co-operatives can use to achieve co-operation and coordination. In addition, the thesis offers the first analytical treatment of how the horizon problem influences investment decisions in co-operatives.
DegreeDoctor of Philosophy (Ph.D.)
SupervisorFulton, Murray E.
CommitteeFairbairn, Brett; Marcoul, Philippe; Ketilson, Lou Hammond; Hobbs, Jill E.; Olfert, M. Rose
Copyright DateJune 2010
alliance management strategies and mechanisms