A few words on Consumer Cooperatives

In our post A Cooperative Economy we argued that shops with numerous “anonymous” customers are not well suited to be run as consumer cooperatives. A consumer cooperative is a business owned and democratically by its consumers. It’s clear that the anonymity of customers, is a s problem for running a consumer cooperative.

One way to solve this problem, is to restrict access to these shops to members of the cooperative. But this seems to be an inferior solution. Could we design a more satisfying solution?

Most companies handle markup pricing, which is determining prices by adding a markup to the costs of production. An an example: a shop owner buys apples from a farmer for 5 Stella per kilogram, and he sells it for 6 Stella per kilogram in his shop. In this case the cost of production is 5 Stella, and the markup is equal to 1 Stella.

In reality the cost of production includes not only the purchase price for the company, but also additional costs such as salaries, transportation and storage. The markup is simply the profit the shop owner makes if he sells something.

How does this relates to consumer cooperatives? The main objective of a consumer cooperative is to reduce the prices for its members. Ideally, the prices its members should be should be equal to the cost of production. Or in other words, setting the markup at zero. A company knows its costs of production (it has to pay these costs) and their markup (it has to set this one). This allows a consumer cooperative to apply price discrimination, by charging members only the costs of production and non-members also the markup.

Of course, this requires that members of the consumer cooperative has to identify themselves when they make a purchase. The simplest way to arrange this, is by providing membership cards when people join the cooperative, probably after a paying a (one time) membership fee. Those who can’t show a membership card, will have to pay the markup as well.

An interesting question is what to do with the markups paid by non-members? It can be used for investments, to pay a bonus to the employees or it can be donated to charity.

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