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Vertical Price Control and Parallel Imports: Theory and Evidence

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  • Keith E. Maskus
  • Yongmin Chen

Abstract

The paper analyzes parallel imports, or goods traded without the authorization of a trademark owner. Parallel imports have multiple causes, including vertical price control, which the authors model. A manufacturer selling its product through an independent agent sets the wholesale price sufficiently low to induce a desired retail price abroad. This permits the agent to sell the product profitably in the originating market. Combined social surplus decreases and then increases in the cost of parallel trade. Restricting parallel imports benefits the manufacturer, but could raise or reduce global surplus. The econometric analysis indicates that the vertical-control explanation of parallel imports is important. Copyright Blackwell Publishing Ltd 2004.

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File URL: http://www.blackwell-synergy.com/links/doi/10.1111/j.1467-9396.2004.00467.x
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Bibliographic Info

Article provided by Wiley Blackwell in its journal Review of International Economics.

Volume (Year): 12 (2004)
Issue (Month): 4 (09)
Pages: 551-570

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Handle: RePEc:bla:reviec:v:12:y:2004:i:4:p:551-570

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References

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  1. Feenstra, Robert C., 1989. "Symmetric pass-through of tariffs and exchange rates under imperfect competition: An empirical test," Journal of International Economics, Elsevier, vol. 27(1-2), pages 25-45, August.
  2. J. S. Chard & C. J. Mellor, 1989. "Intellectual Property Rights and Parallel Imports," The World Economy, Wiley Blackwell, vol. 12(1), pages 69-84, 03.
  3. James Brander & Paul Krugman, 1982. "A 'Reciprocal Dumping' Model of International Trade," Working Papers 513, Queen's University, Department of Economics.
  4. Keith E. Maskus, 1993. "Intellectual property rights and the Uruguay Round," Economic Review, Federal Reserve Bank of Kansas City, issue Q I, pages 10-25.
  5. Malueg, David A. & Schwartz, Marius, 1994. "Parallel imports, demand dispersion, and international price discrimination," Journal of International Economics, Elsevier, vol. 37(3-4), pages 167-195, November.
  6. Katz, Michael L., 1989. "Vertical contractual relations," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 11, pages 655-721 Elsevier.
  7. Kasa, Kenneth, 1992. "Adjustment costs and pricing-to-market theory and evidence," Journal of International Economics, Elsevier, vol. 32(1-2), pages 1-30, February.
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