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Smuggling, Camouflaging, and Market Structure

  • Thursby, Marie
  • Jensen, Richard
  • Thursby, Jerry

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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Article provided by MIT Press in its journal Quarterly Journal of Economics.

Volume (Year): 106 (1991)
Issue (Month): 3 (August)
Pages: 789-814

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Handle: RePEc:tpr:qjecon:v:106:y:1991:i:3:p:789-814
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  1. Grossman, Gene M & Shapiro, Carl, 1988. "Foreign Counterfeiting of Status Goods," The Quarterly Journal of Economics, MIT Press, vol. 103(1), pages 79-100, February.
  2. Sheikh, Munir A., 1974. "Smuggling, production and welfare," Journal of International Economics, Elsevier, vol. 4(4), pages 355-364, November.
  3. 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.
  4. Appelbaum, Elie, 1982. "The estimation of the degree of oligopoly power," Journal of Econometrics, Elsevier, vol. 19(2-3), pages 287-299, August.
  5. 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.
  6. Pitt, Mark M., 1981. "Smuggling and price disparity," Journal of International Economics, Elsevier, vol. 11(4), pages 447-458, November.
  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. 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.
  9. Ethier, Wilfred J, 1986. "Illegal Immigration: The Host-Country Problem," American Economic Review, American Economic Association, vol. 76(1), pages 56-71, March.
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