Rev Ind Organ (2007) 30:63–79
When cost improvements harm consumers
Philippe Bontems · Nicolas Gruyer
Published online: 28 February 2007
© Springer Science+Business Media B.V. 2007
Abstract This paper demonstrates that improving cost efﬁciency in a vertical
structure might sometimes be detrimental to consumers. This is in stark con-
trast with the standard microeconomics result 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 new results
may apply in contexts such as the diffusion of knowledge and techniques and
governmental intervention through income support programs.
Keywords Oligopsonists · Retail · Vertical structure · Cost pass-through
JEL Classiﬁcations: L11 · L12
This paper demonstrates that in a vertical structure improving upstream cost
efﬁciency might sometimes be detrimental to ﬁnal consumers. This is in stark
contrast with the standard microeconomics result which suggests that the sur-
plus generated by any efﬁciency gain in production would be shared between the
producers and the ﬁnal consumers, depending on the degree of market power
Université de Toulouse (GREMAQ, INRA, IDEI), Manufacture des Tabacs, Allées de
Brienne, 31000 Toulouse, France.
N. Gruyer (
LEEA-Enac, 7 avenue Edouard Belin, BP4005, 31055 Toulouse Cedex 4, France.