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Parallel Imports and Competition With Multiple Manufacturers

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  • Kuo‐Feng Kao
  • Pei‐Cyuan Shih

Abstract

We use a two‐country model to examine the effect of parallel imports (PIs) when there are multiple manufacturers. With one manufacturer, PIs intensify competition in the home market and lower the manufacturer's profit. However, with multiple manufacturers, PIs may raise both the manufacturer's profit and social welfare. Without PIs, manufacturers set the wholesale price below marginal cost to win market share in the foreign country, creating excessive competition abroad. Allowing PIs leads manufacturers to raise wholesale prices, mitigating home‐market competition. Higher wholesale prices also reduce foreign market competition, increasing manufacturers' profits when trade costs or foreign market size are large. Finally, we show that allowing PIs may lead manufacturers to authorize retailers to serve both markets exclusively when the foreign market is large and trade costs are very low.

Suggested Citation

  • Kuo‐Feng Kao & Pei‐Cyuan Shih, 2026. "Parallel Imports and Competition With Multiple Manufacturers," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 28(5), October.
    • Handle: RePEc:bla:jpbect:v:28:y:2026:i:5:n:e70139
    DOI: 10.1111/jpet.70139
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