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Smuggling, Camouflaging, and Market Structure

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  • Thursby, Marie
  • Jensen, Richard
  • Thursby, Jerry

Abstract

The authors examine how market structure and enforcement affect smuggling and welfare in a model where smuggling is camouflaged by legal sales. Conditions are given for when some, but not necessarily all, firms smuggle. With camouflaging, the market price is below the price when all sales are legal, so smuggling improves welfare if the price effect outweighs excess smuggling cost. This welfare effect is directly related to the degree of competition. Increased enforcement in this model potentially reduces welfare. The model is shown to be consistent with evidence on cigarette smuggling in the United States for 1975-82. Copyright 1991, the President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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Bibliographic Info

Article provided by MIT Press in its journal Quarterly Journal of Economics.

Volume (Year): 106 (1991)
Issue (Month): 3 (August)
Pages: 789-814

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Handle: RePEc:tpr:qjecon:v:106:y:1991:i:3:p:789-814

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  1. Grossman, Gene M & Shapiro, Carl, 1988. "Foreign Counterfeiting of Status Goods," The Quarterly Journal of Economics, MIT Press, vol. 103(1), pages 79-100, February.
  2. repec:fth:michin:230 is not listed on IDEAS
  3. Appelbaum, Elie, 1982. "The estimation of the degree of oligopoly power," Journal of Econometrics, Elsevier, vol. 19(2-3), pages 287-299, August.
  4. Deardorff, A.V. & Stolper, W.F., 1988. "Effects Of Smuggling Under African Conditions: A Factual, Institutional And Analytic Discussion," Working Papers 230, Research Seminar in International Economics, University of Michigan.
  5. Ethier, Wilfred J, 1986. "Illegal Immigration: The Host-Country Problem," American Economic Review, American Economic Association, vol. 76(1), pages 56-71, March.
  6. Sheikh, Munir A., 1974. "Smuggling, production and welfare," Journal of International Economics, Elsevier, vol. 4(4), pages 355-364, November.
  7. Baltagi, Badi H & Levin, Dan, 1986. "Estimating Dynamic Demand for Cigarettes Using Panel Data: The Effects of Bootlegging, Taxation and Advertising Reconsidered," The Review of Economics and Statistics, MIT Press, vol. 68(1), pages 148-55, February.
  8. Sumner, Daniel A, 1981. "Measurement of Monopoly Behavior: An Application to the Cigarette Industry," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 1010-19, October.
  9. Pitt, Mark M., 1981. "Smuggling and price disparity," Journal of International Economics, Elsevier, vol. 11(4), pages 447-458, November.
  10. Sullivan, Daniel, 1985. "Testing Hypotheses about Firm Behavior in the Cigarette Industry," Journal of Political Economy, University of Chicago Press, vol. 93(3), pages 586-98, June.
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Cited by:
  1. Leal, Andrés & López-Laborda, Julio & Rodrigo, Fernando, 2009. "Prices, taxes and automotive fuel cross-border shopping," Energy Economics, Elsevier, vol. 31(2), pages 225-234.
  2. Mohammad Reza Farzanegan, 2008. "Illegal Trade in the Iranian Economy: Evidence from a Structural Model," Working Papers 409, Economic Research Forum, revised Jun 2008.
  3. Konrad, Kai A. & Lohse, Tim & Qari, Salmai, 2011. "Customs compliance and the power of imagination," Discussion Papers, Research Professorship & Project "The Future of Fiscal Federalism" SP II 2011-108, Social Science Research Center Berlin (WZB).
  4. Ferrier, Peyton Michael, 2008. "Illicit Agricultural Trade," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 37(2), October.
  5. de Melo, Jaime & Roland-Holst, David & Haddad, Mona, 1992. "Tax evasion and tax reform in a low income economy : general equilibrium estimates for Madagascar," Policy Research Working Paper Series 918, The World Bank.
  6. Marie C. Thursby & Jerry G. Thursby, 1994. "Interstate Cigarette Bootlegging: Extent, Revenue Losses, and Effects of Government Intervention," NBER Working Papers 4763, National Bureau of Economic Research, Inc.
  7. Mathä, Thomas Y. & Porpiglia, Alessandro & Ziegelmeyer, Michael, 2014. "Cross-border commuting and consuming: An empirical investigation," MEA discussion paper series 14284, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
  8. Garrett, Thomas A. & Marsh, Thomas L., 2002. "The revenue impacts of cross-border lottery shopping in the presence of spatial autocorrelation," Regional Science and Urban Economics, Elsevier, vol. 32(4), pages 501-519, July.
  9. Thomas Y. Mathä & Alessandro Porpiglia & Michael Ziegelmeyer, 2014. "Wealth differences across borders and the effect of real estate price dynamics: Evidence from two household surveys," BCL working papers 90, Central Bank of Luxembourg.
  10. Kazuki Onji, 2009. "A Tale of Pork Prices: Evasion and Attenuation of a Japanese Tariff," Asia Pacific Economic Papers 382, Australia-Japan Research Centre, Crawford School of Public Policy, The Australian National University.
  11. Ferrier, Peyton Michael, 2009. "The Economics of Agricultural and Wildlife Smuggling," Economic Research Report 55951, United States Department of Agriculture, Economic Research Service.
  12. Gillespie, Kate, 2003. "Smuggling and the global firm," Journal of International Management, Elsevier, vol. 9(3), pages 317-333.
  13. Alamar, Benjamin Ph.D. & Mahmoud, Leila J.D. & Glantz, Stanton A. Ph.D., 2003. "Cigarette Smuggling in California: Fact and Fiction," University of California at San Francisco, Center for Tobacco Control Research and Education qt4fv0b2sz, Center for Tobacco Control Research and Education, UC San Francisco.

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