When cost improvements harm consumers

Nicolas Gruyer (1) , Philippe Bontems

1 LEEA - ENAC - Laboratoire d'Economie et d'Econométrie de l'Aérien

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.

Mots clés: oligopsonists; retail; vertical structure; cost pass-through

Domaines: Economies et finances

Nicolas Gruyer, Philippe Bontems. When cost improvements harm consumers. Review of Industrial Organization, 2007, 30 (1), pp 63-79. ⟨10.1007/s11151-007-9126-z⟩. ⟨hal-01021576⟩