This paper demonstrates that improving cost efficiency in a vertical structure might sometimes be detrimental to consumers. This is in stark contrast 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.
Review of Industrial Organization – Springer Journals
Published: Feb 28, 2007
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