The lumber industry sells sawdust as a by-product, can you think of any other company or business that has by-product pricing?
By-product pricing refers to the case where a producer can afford to keep the price of the original product being sold lower as the by-products obtained in the process of production of the original product have a substantial resale value.
For example, when sugar is being produced from sugar beet many by-products are produced that can be used as cattle feed. These are sold to cattle farmers. A similar case applied to the production of starch and malt which also produce cattle feed as by-products.. Sugar produced from sugar cane gives producers an opportunity to produce energy from the by-products. A part of the revenue earned from selling the energy generated can be used to reduce the cost at which the sugar produced is sold.