The Distributional Impacts of Non-Uniform Pricing Schemes for Cooperatives

The traditional pricing mechanism examined in the economic literature on cooperatives is uniform (or linear) pricing. The conclusion of the literature is that uniform pricing mechanisms will often give rise to economic inefficiencies. These inefficiencies emerge when the cooperative is operating in a region of either increasing average cost or decreasing average cost. The reason for these inefficiencies is that uniform pricing schemes cannot allocate the profits or losses of a cooperative among its members without distorting the decisions members make. The purpose of this paper is to explore the role of non-uniform pricing in generating efficient outcomes and to examine the distributional effects of simple non-uniform pricing schemes. Although the focus of this paper is specifically on cooperatives. the results are applicable in other situations in which average cost pricing is used.