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Parallel Imports, Market Size And Investment Incentive

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  • ALFONS PALANGKARAYA

    (Centre for Microeconometrics, Melbourne Institute of Applied Economic and Social Research, Australia; Intellectual Property Research Institute of Australia, The University of Melbourne, Melbourne)

  • JONGSAY YONG

    ()
    (Centre for Microeconometrics, Melbourne Institute of Applied Economic and Social Research, Australia; Intellectual Property Research Institute of Australia, The University of Melbourne, Melbourne)

Abstract

This paper proposes a vertical control model that features two-part tariff pricing, leader-fringe-follower competition, and investment to characterize the conditions under which parallel imports will (or will not) occur when such activities are legally permitted. In addition, we analyze the effects of parallel imports on the incentive of an authorized distributor to invest in market development. We find that parallel imports cannot arise if the target and the source market either differ too greatly or are too similar in size. Two results are worth emphasizing. First, parallel imports can arise even if the IP owner has the ability to deter parallel imports. Second, the presence of parallel imports and even the threat posed by parallel imports can reduce the domestic distributor's market development investment.

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Bibliographic Info

Article provided by World Scientific Publishing Co. Pte. Ltd. in its journal The Singapore Economic Review.

Volume (Year): 54 (2009)
Issue (Month): 02 ()
Pages: 167-181

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Handle: RePEc:wsi:serxxx:v:54:y:2009:i:02:p:167-181

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Keywords: Parallel imports; vertical control; Intellectual Property (IP) law;

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  1. repec:reg:wpaper:258 is not listed on IDEAS
  2. Maskus, Keith E. & Yongmin Chen, 2000. "Vertical price control and parallel imports - theory and evidence," Policy Research Working Paper Series 2461, The World Bank.
  3. Malueg, D.A. & Schwartz, M., 1993. "Parallel Imports, Demand Dispersion and International Price Discrimination," Papers 93-6, U.S. Department of Justice - Antitrust Division.
  4. Richardson, Martin, 2002. "An elementary proposition concerning parallel imports," Journal of International Economics, Elsevier, vol. 56(1), pages 233-245, January.
  5. Tommaso Valletti & Stefan Szymanski, 2006. "Parallel Trade, International Exhaustion and Intellectual Property Rights: A Welfare Analysis," CEIS Research Paper 75, Tor Vergata University, CEIS.
  6. Abbott, Frederick M, 1998. "First Report (Final) to the Committee on International Trade Law of the International Law Association on the Subject of Parallel Importation," Journal of International Economic Law, Oxford University Press, vol. 1(4), pages 607-36, December.
  7. 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.
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