When cost improvements harm consumers
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 generated 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.
|Date of creation:||24 Mar 2006|
|Date of revision:|
|Note:||Type of Document - pdf; pages: 21.|
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- Sexton, Richard J. & Lavoie, Nathalie, 2001. "Food processing and distribution: An industrial organization approach," Handbook of Agricultural Economics, in: B. L. Gardner & G. C. Rausser (ed.), Handbook of Agricultural Economics, edition 1, volume 1, chapter 15, pages 863-932 Elsevier.
- Barros, Pedro Pita & Brito, Duarte & de Lucena, Diogo, 2006. "Mergers in the food retailing sector: An empirical investigation," European Economic Review, Elsevier, vol. 50(2), pages 447-468, February.
- Stephen F. Hamilton & David Sunding, 1998. "Returns to Public Investments in Agriculture with Imperfect Downstream Competition," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 80(4), pages 830-838.
- Stephen F. Hamilton & David L. Sunding, 1997. "The Effect of Farm Supply Shifts on Concentration and Market Power in the Food Processing Sector," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(2), pages 524-531.
- Stennek, Johan & Verboven, Frank, 2001. "Merger Control and Enterprise Competitiveness - Empirical Analysis and Policy Recommendations," Working Paper Series 556, Research Institute of Industrial Economics.
- Michael A. Salinger, 1988. "Vertical Mergers and Market Foreclosure," The Quarterly Journal of Economics, Oxford University Press, vol. 103(2), pages 345-356.
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