Nature of group depend on objective and context

- If firms seek higher price in by restricting output – Exclusive Group

- If firms seek support to seek lower taxes/change in government policy – Inclusive Group

Exclusive or Market Group

Firms are competitors or rivals

Fixed amount of benefit derived from exclusive collective good

Firms hope to keep number of group firms as low as possible

100 percent participation of group members required

Non collusive members can deprive collusive firms of all benefits

In case unanimous participation required, possibility of holdout

Inclusive or Non Market Groups

Benefit from collective good not fixed in supply

Bargaining or strategic interaction is less common

No desire to eliminate anyone form inclusive group

Any number of firms can join without reducing benefits of others

Non participation does not take away benefits from cooperating firms

Olson describes three general classes of collective action groups

Privileged Group

Has the greatest likelihood for creating collective benefits

Group contains at least one individual who receives a large enough portion of total group benefits to be willing to bear all of the costs for providing the collective good

Privileged groups tend to be small for three reasons.

Latent Groups

Tend to be large in size

Unable to form and/or sustain the provision of collective benefits

Individuals within a latent group receive a very small portion of the total group benefits, which produce little direct incentive for an individual to contribute resources towards group activities.

Difficult for group members to identify individuals who do not contribute

large groups typically need formal organizations to coordinate activities and supply collective goods, increasing the cost of formation and provision.

Intermediate Groups

contain no individual members who receive a large enough portion of the total group benefit to be willing to bear all of the provision costs but it was possible for members to detect if an individual, or a subgroup of individuals, alters their contributions

Group coordination is required to supply the collective good, but it is indeterminate if the group would have the ability to create collective benefits.

First, each individual within a small group

receives a greater portion of the total group benefit relative to those within a large group

increasing the likelihood that at least one individual would be willing to bear all of the provision

costs. Second, it is less expensive to coordinate the activities of a small group. Small groups

may be able to achieve their objectives without creating a formal organization; but if a formal

organization is required, the formation and maintenance costs for a small group would be less

than a large group. And third, it is easier for members in a small group to monitor the actions of

other members and detect changes in contribution levels. This allows the group to use social

incentives to reward collaboration or punish non-collaboration.