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Regarding the effects of the degree of producer heterogeneity, t, and the size of innovation costs,
ψ, on total innovation activity, the analysis shows that the greater is tψ, the more likely it is that the
mixed oligopsony will result in higher total innovation than the pure oligopsony. The increased likelihood
that total innovation is greater in the mixed oligopsony under higher innovation costs is the direct
outcome of the co-op internalizing the effects of its innovation activity to (at least some) farmers.
In terms of the effect of the degree of farmer heterogeneity on the total innovation undertaken
under the pure and mixed oligopsonies, the argument is slightly different. To begin, note that while t does
not affect the amount of total innovation in the pure oligopsony, it affects the innovation effort of both the
co-op and the IOF in the mixed oligopsony case. In particular, a high value of t allows the co-op to
increase its earnings in stage 1 (used to finance its innovation activity in stage 2) without drastically
reducing the size of its pre-innovation membership. At the same time, a high value of t provides the IOF
with incentives to increase its innovation effort since, under increased farmer heterogeneity, this firm can
reduce its price (and increase its profits) at the post-innovation stage of the game. Thus, as farmer
heterogeneity increases, so does total innovation in the mixed oligopsony.
Consider next the effect of cooperative involvement on farm product prices. Figure 3 graphs the
price reaction functions in the pure and mixed oligopsonies and illustrates the changes in equilibrium
prices caused by the presence of the member welfare maximizing co-op at the pre-innovation stage of the
game. When compared to Firm C in the pure oligopsony, the co-op’s reaction function ( RFC'(1) ) is shifted
outwards in leftward rotation. At the same price, the presence of the co-op causes the reaction function of
Firm I (IOF in both the pure and mixed oligopsonies) to shift upwards in rightward rotation. The result is
that both firms in the mixed duopsony pay higher prices to farmers than the IOFs in the pure duopsony.
Since both prices are increased in the mixed oligopsony, all farmers, members and non-members of the
co-op, benefit from the presence of the co-op in the pre-innovation stage of the game.
Figure 4 graphs the post-innovation price reaction functions in the pure and mixed oligopsonies
and illustrates the changes in equilibrium prices caused by the presence of the member welfare