Understanding Digital Inequality and the Role of Cooperatives

Abstract

This dissertation aims to further our understanding of digital inequality and the role of cooperatives in relation to investor-owned firms. Chapter 1 provides a brief motivation for studying cooperatives and an overview of the dissertation. Chapter 2 provides a brief background on digital inequality, including various technologies and their quality. This chapter also describes how investor-owned firms and cooperatives show opposite patterns in providing high-quality or high-tech services in disadvantaged communities, motivating further investigation of the role of cooperatives in providing high-quality services in marginalized communities. Chapter 3 examines the comparative advantage of cooperatives relative to investor-owned firms in Internet infrastructure provision. Infrastructure projects generate positive local externalities for the communities in which they are located. Because cooperatives can internalize these benefits, they may be willing to provide higher-quality infrastructure than investor-owned firms, especially in marginalized communities where the provision costs are high relative to revenue. I found that cooperatives are more likely to provide Internet in communities where investor-owned providers offer poor quality service; these effects are stronger in rural communities, communities with persistent poverty, and communities with high social cohesion. Chapter 4 compares investor-owned incumbents’ competitive responses to cooperative entry versus investor-owned firm entry. Formed and operating under the principle of prioritizing member benefits to profits, a cooperative entrant will be a larger threat than an investor-owned entrant because cooperatives are not likely to share the mutual understanding with investor-owned incumbents (i.e., minimize competition and maximize profits). I found that incumbents are more likely to upgrade their technology to high-tech in response to cooperative entry than to investor-owned firm entry. The effect is stronger in markets with a low level of competition, measured by only one or two high-tech providers, than in markets with intense competition, measured by more than two high-tech providers. Moreover, the effect is stronger for the big providers that cover many geographic markets across the United States than for small local providers that cover a limited number of local markets.