Nonlinear Pricing Schemes for Agricultural Cooperatives

Abstract Standard pricing practices are generally not efficient for a cooperative. Sexton (1986) suggests that membership fees/rebates can be used to facilitate efficient pricing, but such schemes may not be feasible because of membership heterogeneity and information asymmetries. In this paper a constrained efficient pricing rule for a cooperative is derived that explicitly addresses the heterogeneity and information constraints. The optimal rule generally entails nonlinear pricing which, for the case of a farm purchasing cooperative, entails a higher average price for higher delivery volumes. The constrained efficient rule is modified to distribute the benefits more evenly over the cooperative's membership.