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Strategic competition and optimal parallel import policy

Author

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  • Santanu Roy
  • Kamal Saggi

Abstract

In a two-country Hotelling type duopoly model of price competition, we show that parallel import (PI) policy can act as an instrument of strategic trade policy. The home firm's profit is higher when it cannot price discriminate internationally if and only if the foreign market is sufficiently bigger than the domestic one. The key mechanism in the model is that the home firm's incentive to keep its domestic price close to the optimal monopoly price affects its behavior during price competition abroad. We also analyze the welfare implications of PI policies and show that our key insights extend to quantity competition.

Suggested Citation

  • Santanu Roy & Kamal Saggi, 2012. "Strategic competition and optimal parallel import policy," Canadian Journal of Economics, Canadian Economics Association, vol. 45(4), pages 1369-1396, November.
    • Handle: RePEc:cje:issued:v:45:y:2012:i:4:p:1369-1396
    DOI: 10.1111/j.1540-5982.2012.01735.x
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    Cited by:

    1. Ishikawa, Jota & Morita, Hodaka & Mukunoki, Hiroshi, 2020. "Parallel imports and repair services," Journal of Economic Behavior & Organization, Elsevier, vol. 172(C), pages 137-160.
    2. Bennato, Anna Rita & Valletti, Tommaso, 2014. "Pharmaceutical innovation and parallel trade," International Journal of Industrial Organization, Elsevier, vol. 33(C), pages 83-92.
    3. Kamal Saggi, 2016. "Trade, Intellectual Property Rights, and the World Trade Organization," Vanderbilt University Department of Economics Working Papers 16-00014, Vanderbilt University Department of Economics.

    More about this item

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F10 - International Economics - - Trade - - - General
    • F15 - International Economics - - Trade - - - Economic Integration

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