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Smuggling, Camouflaging, and Market Structure

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Author Info

  • THURSBY, M.
  • JENSEN, R.
  • THURSBY, J.

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

Paper provided by Purdue University, Department of Economics in its series Purdue University Economics Working Papers with number 1005.

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Length: 28 pages
Date of creation: 1991
Date of revision:
Handle: RePEc:pur:prukra:1005

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Related research

Keywords: market ; prices ; models ; competition;

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References

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  1. repec:fth:michin:230 is not listed on IDEAS
  2. Pitt, Mark M., 1981. "Smuggling and price disparity," Journal of International Economics, Elsevier, vol. 11(4), pages 447-458, November.
  3. Alan Deardorff & Wolfgang Stolper, 1990. "Effects of smuggling under african conditions: A factual, institutional and analytic discussion," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 126(1), pages 116-141, March.
  4. 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.
  5. Gene M. Grossman & Carl Shapiro, 1988. "Foreign Counterfeiting of Status Goods," NBER Working Papers 1915, National Bureau of Economic Research, Inc.
  6. Ethier, Wilfred J, 1986. "Illegal Immigration: The Host-Country Problem," American Economic Review, American Economic Association, vol. 76(1), pages 56-71, March.
  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. Appelbaum, Elie, 1982. "The estimation of the degree of oligopoly power," Journal of Econometrics, Elsevier, vol. 19(2-3), pages 287-299, August.
  9. Sheikh, Munir A., 1974. "Smuggling, production and welfare," Journal of International Economics, Elsevier, vol. 4(4), pages 355-364, 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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Citations

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Cited by:
  1. 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.
  2. Kai A. Konrad & Tim Lohse & Salmai Qari, 2012. "Customs Compliance and the Power of Imagination," CESifo Working Paper Series 3702, CESifo Group Munich.
  3. Farzanegan, Mohammad Reza, 2009. "Illegal trade in the Iranian economy: Evidence from a structural model," European Journal of Political Economy, Elsevier, vol. 25(4), pages 489-507, December.
  4. 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.
  5. 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.
  6. 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.
  7. Thomas Y. Mathä & Alessandro Porpiglia & Michael Ziegelmeyer, 2014. "Cross-border commuting and consuming: An empirical investigation," BCL working papers 89, Central Bank of Luxembourg.
  8. 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.
  9. Gillespie, Kate, 2003. "Smuggling and the global firm," Journal of International Management, Elsevier, vol. 9(3), pages 317-333.
  10. 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.
  11. 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.
  12. Ferrier, Peyton Michael, 2009. "The Economics of Agricultural and Wildlife Smuggling," Economic Research Report 55951, United States Department of Agriculture, Economic Research Service.
  13. Ferrier, Peyton Michael, 2008. "Illicit Agricultural Trade," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 37(2), October.

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