That may happen, but it doesn't answer the question what the cut will be. I don't think there is an answer, since as GP pointed out, in free market, both margins should approach 0, so the ratio can be anything in that limit.
This also raises a question, if no one can make a profit, why should people want free market? Basically, free market promises subsistence wages to workers.
And what about consumers switching to distributors? That's the problem, you (wrongly) see economy as having two parts - one part producers, another part consumers (and so presumably you put distributors together with producers), but it really isn't like that, it's cyclic. You can't always hammer it into some supply-demand model (that's actually what makes the example interesting!).
