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Competition, Parallel Imports And Cost‐Reducing Innovation

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  • Changying Li

Abstract

Incorporating parallel imports (PI), we develop a two‐country two‐firm model which relates to the incentives for cost‐reducing innovation. We show that PI may facilitate or inhibit the manufacturers' incentives to innovate. In particular, PI could encourage both firms' innovations. The difference between the manufacturer's profits under successful innovation and failed innovation is either a U‐shaped curve or an inverted U‐shaped curve in terms of the cost of engaging in PI. As these differences reflect the manufacturers' incentive to innovate, the variations in R&D investment depend on transportation cost, and firms' marginal costs before and after successful innovations.

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  • Changying Li, 2006. "Competition, Parallel Imports And Cost‐Reducing Innovation," Scottish Journal of Political Economy, Scottish Economic Society, vol. 53(3), pages 377-397, July.
    • Handle: RePEc:bla:scotjp:v:53:y:2006:i:3:p:377-397
    DOI: 10.1111/j.1467-9485.2006.00385.x
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    1. Ganslandt, Mattias & Maskus, Keith E., 2007. "Vertical distribution, parallel trade, and price divergence in integrated markets," European Economic Review, Elsevier, vol. 51(4), pages 943-970, May.
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    Cited by:

    1. Andrea Mantovani & Alireza Naghavi, 2010. "Parallel Imports and Innovation in an Emerging Economy," Center for Economic Research (RECent) 038, University of Modena and Reggio E., Dept. of Economics "Marco Biagi".
    2. Arijit Mukherjee & Laixun Zhao, 2012. "Profitable parallel trade in unionized markets," Journal of Economics, Springer, vol. 107(3), pages 267-276, November.
    3. Civan Abdulkadir & Maloney Michael T., 2009. "The Effect of Price on Pharmaceutical R&D," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 9(1), pages 1-24, April.
    4. Stähler, Frank & Maskus, Keith, 2013. "Retailers as Agents and the Absence of Parallel Trade," VfS Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79737, Verein für Socialpolitik / German Economic Association.
    5. Maskus, Keith E. & Stähler, Frank, 2014. "Retailers as agents and the limits of parallel trade," European Economic Review, Elsevier, vol. 70(C), pages 186-196.

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