398 / 2024-04-24 22:16:38

Network Effect vs. Reputation Risk: The Impact of Externality and Output Level on the Willingness of Agricultural Cooperatives to Form Brand Alliances

Network Effect; Agricultural Supply Chain; Coopetition; Brand Alliances

Brand alliances, wherein several agricultural cooperatives unite under a single label, can amplify their collective market impact, and potentially yield greater profit margins. However, engaging in brand alliances also raises the reputation risk associated with potential food safety concerns within the cooperatives. In the face of this dilemma, it becomes valuable to identify specific conditions that encourage agricultural cooperatives to form such strategic alliances. This study, using a two-tier supply chain model consisting of a supermarket and two cooperatives, examines the impact on the willingness of cooperatives to form brand alliances in the context of uncertain agricultural output and potential reputational risk stemming from food safety issues. Our findings highlight that under conditions of high network effect and output level, cooperatives are more inclined to engage in brand alliances. Interestingly, we also find that the willingness of cooperatives to form brand alliances does not necessarily increase with enhanced network effect or increased output level. Furthermore, within certain thresholds of network effect and output quantities, the decision to form brand alliances could indeed be counterproductive, leading to a decrease in overall social welfare. Finally, the analysis is extended to cover different scenarios, including asymmetries between cooperatives and the existence of reputational impacts among cooperatives in the absence of alliances.