How do Incumbents Affect the Founding of Cooperatives? Evidence from the German electricity industry

Abstract

As cooperatives become a crucial part of our society’s repository of solutions for addressing the sustainability challenges, the very emergence of cooperatives continues to puzzle scholars. In this study we address a central concern for both organizational scholars and sustainability advocates, i.e. where and under which conditions cooperatives emerge as an alternative form to corporations. Building on organizational ecology theories, we argue that the varying organizational characteristics within local incumbent forms constitute an additional layer to explain cooperatives’ emergence, above and beyond the known effects of community characteristics and incumbents’ aggregated density (or capacity). Our analysis of a unique data set of German energy cooperatives between 2003 and 2010 support our hypotheses. Our results show that energy cooperatives are more likely to be founded where incumbent utilities have higher average age and greater size diversity, because age-related inertia and lack of competition among incumbents of diverse size limit their adaptability towards serving the new market demand for renewable energy.