I would not say that it is necessary for a manufacturer to
pass on all the savings due to an increased efficiency in manufacturing. One important
thing that needs to be considered is the price elasticity of demand. If a reduction in
price can boost sales to a large extent, it may be advisable to reduce the price. The
price at which a manufacturer makes the highest profit is that beyond which a reduction
in price does not increase profits even with higher
revenues.
If maintaining the same price does not reduce
sales, and reducing the price does not increase profits, there is no point in passing on
the savings. Any manufacturer needs to be able to offer a better deal than its
competitor; if the price of both is the same, and they are also able to manage aspects
like advertising, promotion, distribution, etc. in the same way, it shouldn't be
necessary that the prices be brought down.
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