Efficient timber pricing and purchasing behavior in forest owners’ associations

In Norway, forest owners’ associations (FOAs) have increased their market share the past few years. Even though FOAs exploit economics of scale achieved through collaboration among small nonindustrial wood-lots, standard linear pricing as the timber purchasing strategy can turn out sub-optimal. In line with Vercammen et al. (Am. J. Agric. Economics 78 (1996) 572) a constrained efficient nonlinear pricing scheme for FOAs is derived. The forest owners are grouped in low and high cost types. Efficient nonlinear pricing gives the forest owners an extra unit payment for their increased supply, given that the FOAs break even. Inelastic supply, a large low cost type group, equality between types, and high fixed costs make standard linear pricing more efficient.