Consumer Unions: Blessing or Curse?

Posted by Social Science Research Network

Consumer Unions: Blessing or Curse? C. Gizem Korpeoglu (University College London)

Abstract: We study whether and when cooperation among consumers is beneficial to consumers when producers have market power. We refer to cooperation of consumers as “consumer union” and gauge how the size of these unions affects consumers. We construct an imperfect competition model in a general equilibrium setting, in particular, a variant of the market game model. We establish, contrary to a first intuition and the prior literature, that consumer welfare decreases with union size when the union size is above a certain threshold. We also prove that consumer unions discourage producers’ investments, which may have repercussions for long-term consumer welfare. Finally, we show that depending on the production technology, having a higher number of producers can be more effective in promoting consumer welfare than having consumer unions.