When cost improvements harm consumers

Nicolas Gruyer and Philippe Bontems
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Nicolas Gruyer: LEEA - ENAC - Laboratoire d'Economie et d'Econométrie de l'Aérien - ENAC - Ecole Nationale de l'Aviation Civile

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Abstract: This paper demonstrates that in a vertical structure, improving cost efficiency might sometimes be detrimental to consumers, by increasing market price. This is in stark contrast to the standard result in oligopoly theory which suggests that the surplus generates by any efficiency gain in production is shared between firms and final consumers, depending on the degree of market power. These results are applied in contexts such as international trade, diffusion of knowledge and techniques and government intervention through income support programs.

Keywords: oligopsonists; retail; vertical structure; cost pass-through (search for similar items in EconPapers)
Date: 2007-02
Note: View the original document on HAL open archive server: https://enac.hal.science/hal-01021576
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Published in Review of Industrial Organization, 2007, 30 (1), pp 63-79. ⟨10.1007/s11151-007-9126-z⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-01021576

DOI: 10.1007/s11151-007-9126-z

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