Midterm - Final

Question 1

What are the three co-op pricing strategies

Answer 1

Average
Maximum/Minimum
Optimal

Question 2

How to members receive their economic benefit with average pricing?

Answer 2

At point of sale
No profits

Question 3

How do members receive their economic benefit with maximum/ minimum pricing?

Answer 3

At point of sale
No profits

Question 4

How did the CWB deal with organic products?

Answer 4

Organic farmers had to sell to CWB first, then buy back (at a higher price) and market it themselves.

Question 5

What were the two most important roles of the CWB?

Answer 5

Guarantee advance payments
Single-desk seller into international markets

Question 6

How did grain co-ops make their money after CWB?

Answer 6

Elevation and the associated services (mixing, grading, drying, etc.)

Question 7

How do we set up supply management?

Answer 7

• close off or restrict imports (keep trading partners happy by basing it on current imports)
• figure out average cost of production and set price there
• make it illegal to sell the good without having quota
• set up regional quotas based on historical production patterns

Question 8

What is import rent?

Answer 8

When a company has an import quota, they can bring a supply managed product into the country for the cheaper world prices, then they sell it into a restricted domestic market where prices are artificially high.

Question 9

When relaxing import quota, what happens?

Answer 9

• domestic prices come down
• which means prices may go below cost of production
• those with the additional import quota may decide not to use it because it could eat into their profits.

Question 10

How do new importers of a supply managed good get into the business?

Answer 10

It’s really difficult, and they have to pay high prices and wait long times for existing quota, and this forms a massive barrier to entry.

Question 11

What do we need in order for a co-operative oligopoly (not a co-op) to exist?

Answer 11

• firms must agree to restrict output
• low expectation of punishment
• steep demand curve
• low organizational costs
• few firms
• homogeneous product

Question 12

What are the characteristics of a non-cooperative oligopoly?

Answer 12

• consumers are price takers
• homogeneous product
• No entry
• firms collectively have market power
• price set by market
• firms only set quantity
• IOFs: MR = MC

Question 13

Why are cartels unstable?

Answer 13

Payoff for over-producing in an inflated market is high.

Question 14

What is a Cournot game?

Answer 14

• Game theory used for Q since P not changeable

Question 15

What is a Bertrand game?

Answer 15

Price games - need differentiated product

Question 16

What happens in a homogeneous product oligopoly when a co-op enters?

Answer 16

Co-op sets price at P = MC, and will pick up as much of the market as they can handle, the rest will go to IOFs (at higher price). If co-op can handle whole market it will.

Question 17

What are the three models of equity payment for co-ops?

Answer 17

Revolving Fund
Percentage of All Equities
Nonsystematic

Question 18

What is the Revolving Fund model?

Answer 18

Regular patronage payments.
Regular payments of equity refunds after an investment period.
Final payment of member’s equity at the end.
Receive payment of initial equity at retirement.

Question 19

What is the Percentage of All Equities model?

Answer 19

Regular patronage payments.
Cash equity refunds throughout.
On retirement or death refund of remaining accumulated equity and initial payment.

Question 20

What is the Nonsystematic model?

Answer 20

Regular cash patronage payments.
Refund entire member’s accumulated equity and initial equity on retirement or death.

Question 21

What’s unique about New Generation Co-ops?

Answer 21

Membership is closed.
Can have non-member investors, who receive dividends based on amount of their investment.
Members have to purchase delivery rights (if applicable).
High initial equity investment for members.
Tradable equity with board approval.

Question 22

How are delivery rights priced in a NGC?

Answer 22

Total amount of required capital divided by units of processing capacity.

Question 23

What are delivery rights shares?

Answer 23

• preferred share for members only
• non-voting
• delivery contract
• patronage/ retained equity

Question 24

What kinds of shares are issued by a NGC for member investment? Characteristics?

Answer 24

Common shares
- members only
- issued and redeemed at par
- dividends
- property on dissolution

Question 25

What kind of shares are issued by a NGC for public investment? Characteristics?

Answer 25

Preferred shares
- non-members
- dividends
- fully transferable
- voting (separate from members)
- encourage community involvement

Question 26

Do we need to know the case studies? If so add them

Question 27

What are the keys to success for a NGC?

Answer 27

Member commitment.
Consistent board.
Best management possible.
Members can withstand price cycles.
Experienced / skilled work force.
Great communication between management and board.
Good market timing.

Question 28

What elements make a successful business strategy?

Answer 28

High end not commodity.
Upper-end private labels.
Develop market before starting.
Find niches.
Aling with national retail.
Multiple products.