Who's absorbing the cost?

This is probably an incomplete answer since I was never involved in the distribution side, but in the old days, the major labels ate the cost of defects and returns and probably pushed back against the pressing plants if there were defective pressings; the inventory was distributed to major chains directly by the big labels and through jobbers and one stops to smaller retailers. My memory is, Casablanca Records crashed and burned, not only because of extravagant spending but because when "disco" music  suddenly died, the label had to eat all the returns. The old style recording artist contracts always had provisions for deductions from royalties for returns, not just defects. The artist didn't get paid if the record company suffered returns.
I suspect with the change in the record industry business model- and particularly vinyl- which is generally viewed as a boutique sideline at best- the inventory is sold on the basis of no returns--often these pressings are more limited in number, they aren't going back for re-pressings, and unless there is some major defect that affects a broad number of copies, the label isn't going to want to hear about it. The retailer will probably eat it as a matter of customer goodwill. 

I honestly don't recall returning that many records due to defects back in the day- I'm sure they existed and I'm sure I returned some. I had "serious" gear starting in 1973 or so, and I'm confident that if a record didn't play or track well, I wouldn't have been happy. But, I also think a couple things have happened- the quality of the mainstream pressings went down, as the market was near zero for a while, and the "audiophile" labels filled the gap for many of us, or classical or jazz collectibles. At that point, we (or at least I) was buying used for the most part- so the standards changed in what to look for and expect. I also think our expectations are higher- folks who stuck with vinyl as a medium got more knowledgeable, and I suspect those who came back to it had greater expectations for quiet, gremlin free playback. I also bought a lot more vinyl after The Death of Vinyl (tm) than I did when it was in its heyday - so, in addition to used, old or cut-out copies as a factor, I'm simply seeing more copies come through with whatever degree of warts they suffer from. 
I've also had few problems with returns etc in current times (e.g. the last ten years). I buy far fewer brand new records than old ones, but when there is a defect in a new record, i return it. From a private seller, there is almost always a refund- eBay or Discogs. From the "usual" suspects, e.g. Music Direct, Acoustic Sounds, they have been pretty accommodating  in the instances where I have had an issue. I don't really have a problem taking a credit rather than a refund since it is likely that I'll wind up buying another record along the way. 
I assume the policy of credit rather than refund is simple economics for the business. Assuming they can't return the defective pressing in most cases, the retailer "eats" it, but wants to retain the profit from the sale to the extent the remedy they offer is a replacement or a credit for a different record. That costs them less (since they are paying a wholesale or lower price) than the full retail price of the record. 
I'm not suggesting a defeatist attitude, or "that's the way things are"- but I don't get that twisted about any of this- I go through a lot of records. My main concern is the pricey rare stuff. If that isn't up to snuff, grade wise, I will be disappointed, but that's rarely happened. It isn't just luck. I engage the seller before I buy in communications via their website or the aggregation platform, get a sense of their knowledge and how critical they are- for an expensive record, I'll often want play grading, but even that is subjective. Yeah, I've had some M- records that weren't really close to mint, but I've also had VG+ or EX that are superb. And every once in a while, I will get a rare pressing, and one that appears to have never been played. So, it all evens out for me in the end. 

Low- oil crisis stuff was pretty bad in the U.S., but most of them still played. I have an original SOS label pressing of Lynyrd Skynyrd "Pronounced" with paper flecks embedded into the vinyl from regrind, but it still plays nicely. Go figure. (I did discover that a ubiquitous MCA later pressing, with no discernible "secret" code actually sounded better than the Sounds of the South labelled one, but the SOS is cool, just for what it was). Al Kooper ’n s---. :)

Willie- the problem is, at least on the pressing side, it isn't newer technology. Most of the presses are old- many were resuscitated after years of being offline. Yes, folks like Chad have, in the process, added some computer assisted monitoring for temperature, but the equipment itself had already been through a long working life. Then add the following additional factors- how many people are around who know how to work on and maintain these presses? And further, how many of the folks today working in the plants have long experience pressing records? I'm sure there are a few, who are helping manage the operation, but there's something to be said for familiarity with the process learned over years of doing it. (I'm aware that there are some new presses coming on line- is it GZ?--but most audiophiles don't seem to like the GZ pressings or the ones that come from the old CBS plant in the Netherlands. Not because of pressing quality itself, but because a lot of the records they make are sourced from digital files due to the choice of the label/producer). 

ebm- which dude?