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Vertical Distribution, Parallel Trade, and Price Divergence in Integrated Markets

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Author Info
Ganslandt, Mattias () (The Research Institute of Industrial Economics)
Maskus, Keith E. () (Department of Economics)

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Abstract

We develop a model of vertical pricing in which an original manufacturer sets wholesale prices in two markets that are integrated at the distributor level by parallel imports (PI). The manufacturing firm needs to set these two prices to balance three competing interests: restricting competition in the PI-recipient market, avoiding resource wastes due to actual trade, and reducing the double-markup problem in the PI-source nation. These trade-offs imply the counterintuitive result that both wholesale and retail prices could diverge as a result of declining trading costs, even as the volume of PI increases. Thus, in some circumstances it may be misleading to think of PI as an unambiguous force for price integration.

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Publisher Info
Paper provided by Research Institute of Industrial Economics in its series Working Paper Series with number 639.

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Length: 30 pages
Date of creation: 15 Apr 2005
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Handle: RePEc:hhs:iuiwop:0639

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Postal: Research Institute of Industrial Economics, Box 55665, SE-102 15 Stockholm, Sweden
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Related research
Keywords: Vertical Restraints; Parallel Imports; Market Integration;

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Find related papers by JEL classification:
F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies
F15 - International Economics - - Trade - - - Economic Integration

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Richardson, Martin, 2002. "An elementary proposition concerning parallel imports," Journal of International Economics, Elsevier, vol. 56(1), pages 233-245, January. [Downloadable!] (restricted)
  2. Keith E. Maskus, 2000. "Parallel Imports," The World Economy, Blackwell Publishing, vol. 23(9), pages 1269-1284, 09. [Downloadable!] (restricted)
  3. Friberg, Richard & Martensen, Kaj, 2001. "Endogenous Market Segmentation and the Law of One Price," Working Paper Series in Economics and Finance 471, Stockholm School of Economics. [Downloadable!]
  4. Yongmin Chen & Keith Maskus, 2005. "Vertical Pricing and Parallel Imports," Journal of International Trade & Economic Development, Taylor and Francis Journals, vol. 14(1), pages 1-18, March. [Downloadable!] (restricted)
  5. Raff, Horst & Schmitt, Nicolas, 2005. "Endogenous vertical restraints in international trade," European Economic Review, Elsevier, vol. 49(7), pages 1877-1889, October. [Downloadable!] (restricted)
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  6. Raff, Horst & Schmitt, Nicolas, 2004. "Exclusive Dealing and Common Agency in International Markets," Economics Working Papers 2004,09, Christian-Albrechts-University of Kiel, Department of Economics. [Downloadable!]
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  7. 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. [Downloadable!] (restricted)
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  1. Ganslandt, Mattias & Maskus, Keith E., 2007. "Wholesale Price Discrimination and Parallel Imports," Working Paper Series 702, Research Institute of Industrial Economics. [Downloadable!]
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This page was last updated on 2009-11-25.

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