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Abstract
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.