||Recent empirical work suggests that cooperative presence in differentiated
product markets lowers the consumer prices of all brands. This paper focuses
on the theoretical basis for this competitive yardstick effect by cooperatives.
It identifies two market structures where the competitive yardstick theorem
for cooperatives can be extended from farmer-first handler markets to differentiated
consumer product markets. They are (1) oligopoly with significant barriers
to entry and (2) monopolistic competition with entry but only non-price
competition. In the latter, the cooperative can also ensure that the socially
optimal number of brands (product variety) is provided by the industry.
The theory also provides useful guidance for determining when supply-limiting
conduct in differentiated product markets should be challenged as undue
price enhancement under the Capper-Volstead law.