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When cost improvements harm consumers

Author

Listed:
  • Nicolas Gruyer

    (LEEA - ENAC - Laboratoire d'Economie et d'Econométrie de l'Aérien - ENAC - Ecole Nationale de l'Aviation Civile)

  • Philippe Bontems

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.

Suggested Citation

  • Nicolas Gruyer & Philippe Bontems, 2007. "When cost improvements harm consumers," Post-Print hal-01021576, HAL.
    • Handle: RePEc:hal:journl:hal-01021576
    DOI: 10.1007/s11151-007-9126-z
    Note: View the original document on HAL open archive server: https://enac.hal.science/hal-01021576
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