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Parallel Imports, Market Size and Investment Incentive

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  • Alfons Palangkaraya

    ()
    (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne)

  • Jongsay Yong

    ()
    (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne)

Abstract

We use a vertical control model with a two-part tariff pricing and a leader-follower competition to investigate some conditions which may prevent the occurrence of parallel importing even when such activity is legally permitted and the effects of parallel importing on the incentive to invest in market development effort for an authorised distributor faced with competition from parallel imported products. We find that parallel imports cannot arise if the target and the source market either differ too greatly or are too similar in size. Also, both the presence of parallel imported products and the threat of such presence reduce the domestic distributor’s market development investment. JEL Classification: L11, F13, 034

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Bibliographic Info

Paper provided by Melbourne Institute of Applied Economic and Social Research, The University of Melbourne in its series Melbourne Institute Working Paper Series with number wp2006n25.

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Length: 25 pages
Date of creation: Nov 2006
Date of revision:
Handle: RePEc:iae:iaewps:wp2006n25

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Postal: Melbourne Institute of Applied Economic and Social Research, The University of Melbourne, Victoria 3010 Australia
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Web page: http://www.melbourneinstitute.com/
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Keywords: parallel imports; vertical control; intellectual property;

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  1. Maskus, Keith E. & Yongmin Chen, 2000. "Vertical price control and parallel imports - theory and evidence," Policy Research Working Paper Series 2461, The World Bank.
  2. Richardson, Martin, 2002. "An elementary proposition concerning parallel imports," Journal of International Economics, Elsevier, vol. 56(1), pages 233-245, January.
  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. 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.
  5. Danzon, Patricia M. & Towse, Adrian, 2003. "Differential Pricing for Pharmaceuticals: Reconciling Access, R&D and Patents," Working paper 258, Regulation2point0.
  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. Szymanski, Stefan & Valletti, Tommaso, 2005. "Parallel Trade, International Exhaustion and Intellectual Property Rights: A Welfare Analysis," CEPR Discussion Papers 5022, C.E.P.R. Discussion Papers.
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