Product differentiation and cooperative governance

The increasing demand for more differentiated consumer products is a challenge for agri-food sales cooperatives. Many cooperatives try to adapt to novel consumer demands by engaging more in product development, with the aim of manufacturing and selling more differentiated products. The article discusses which governance problems that are likely to unfold as cooperatives engage more in the development, production and sales of differentiated end-products. The idea to be advanced is that the nature of the governance problems is contingent on where in the cooperative's production chain the main sources of uniqueness and product differentiation have their origin. When the uniqueness of the end-product is created at the raw-commodity level (on-farm), haggling over appropriable quasi-rent between members and the cooperative is likely to emerge, leading to a hold-up situation. When the uniqueness of the differentiated end-product is created at the cooperative level, the cooperative community is likely to be exposed to consequential incentive problems related to motivation and control.

Research highlights
► Explores cooperative governance problems followed by increased product differentiation.
► Governance problems depend on origin and type of product differentiation.
► When uniqueness is created at the raw commodity level, a hold-up is likely to occur.
► When uniqueness is created at cooperative level, incentive problems are likely to occur.