Agricultural marketing cooperatives with direct selling: A cooperative–non-cooperative game

• We model a market structure where firms both cooperate and compete with each other.
• The firms are farmers who sell both to a cooperative and on an oligopolistic market.
• We find that farmers can sell the same quantity on the oligopolistic market.
• The existence of oligopolistic market can increase the sales to the cooperative.
• It is not possible for the cooperative to operate on the oligopolistic market.

We build a theoretical model to study a market structure with a marketing cooperative and direct selling, in which many farmers are members of an agricultural marketing cooperative. They can sell their production either to the cooperative or on an oligopolistic local market. We show that the decision to sell to the cooperative induces an anti-competitive effect on the direct selling market. The cooperative facilitates collusion on the local market by making farmers softer competitors on that market. Conversely, direct selling may create a “healthy emulation” among farmers, leading to more production benefiting the cooperative.