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Gray Marketing: Does It Hurt the Manufacturers?

  • Hsiu-Li Chen


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    It is generally believed that the existence of gray channels hurts authorized retailers because gray marketers often free-ride on the marketing activities performed by authorized retailers. However, the effect on manufacturers’ profits is still rather vague. This paper sets up a two-stage sub-game perfect equilibrium model to examine the effects of gray goods on authorized retailers and manufacturers. It is found that manufacturers who are against parallel importation are likely to be those whose product has a low gray good penetration ratio, low price elasticity of demand, high cross-price elasticity of demand, or a high demand convexity. Copyright International Atlantic Economic Society 2009

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    Article provided by Springer & International Atlantic Economic Society in its journal Atlantic Economic Journal.

    Volume (Year): 37 (2009)
    Issue (Month): 1 (March)
    Pages: 23-35

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    Handle: RePEc:kap:atlecj:v:37:y:2009:i:1:p:23-35
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    2. Gallini, Nancy T. & Hollis, Aidan, 1999. "A contractual approach to the gray market," International Review of Law and Economics, Elsevier, vol. 19(1), pages 1-21, March.
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    8. Patrick Bolton & Giacomo Bonanno, 1988. "Vertical Restraints in a Model of Vertical Differentiation," The Quarterly Journal of Economics, Oxford University Press, vol. 103(3), pages 555-570.
    9. Yongmin Chen & Keith Maskus, 2005. "Vertical Pricing and Parallel Imports," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 14(1), pages 1-18.
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    11. CREMER, Helmut & THISSE, Jacques-François, 1992. "Commodity taxation in a differentiated oligopoly," CORE Discussion Papers 1992035, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    12. Telser, Lester G, 1990. "Why Should Manufacturers Want Fair Trade II?," Journal of Law and Economics, University of Chicago Press, vol. 33(2), pages 409-17, October.
    13. Jaskold Gabszewicz, J. & Thisse, J. -F., 1979. "Price competition, quality and income disparities," Journal of Economic Theory, Elsevier, vol. 20(3), pages 340-359, June.
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