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Parallel trade, product quality, and welfare

Author

Listed:
  • Giorgio Matteucci

    () (Department of Computer, Control and Management Engineering, Universita' degli Studi di Roma "La Sapienza")

  • Pierfrancesco Reverberi

    () (Department of Computer, Control and Management Engineering, Universita' degli Studi di Roma "La Sapienza")

Abstract

We study the welfare effects of parallel trade (PT) considering investment in quality. We thus revisit the case for allowing PT in research-intensive industries. We find that quality may be higher with than without PT, depending on how consumers’ preferences for quality differ across countries. Conditional on quality, consumer surplus may rise in the source country, or fall in the destination country of PT. We find that PT reduces ex post welfare, and improving quality is a necessary (and sometimes sufficient) condition for PT to increase welfare ex ante.

Suggested Citation

  • Giorgio Matteucci & Pierfrancesco Reverberi, 2013. "Parallel trade, product quality, and welfare," DIAG Technical Reports 2013-14, Department of Computer, Control and Management Engineering, Universita' degli Studi di Roma "La Sapienza".
  • Handle: RePEc:aeg:report:2013-14
    as

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    File URL: http://www.dis.uniroma1.it/~bibdis/RePEc/aeg/report/2013-14.pdf
    File Function: Revised version, 2013
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    References listed on IDEAS

    as
    1. Malueg, David A. & Schwartz, Marius, 1994. "Parallel imports, demand dispersion, and international price discrimination," Journal of International Economics, Elsevier, pages 167-195.
    2. Keith E. Maskus & Yongmin Chen, 2004. "Vertical Price Control and Parallel Imports: Theory and Evidence," Review of International Economics, Wiley Blackwell, vol. 12(4), pages 551-570, September.
    3. Li, Changying & Maskus, Keith E., 2006. "The impact of parallel imports on investments in cost-reducing research and development," Journal of International Economics, Elsevier, vol. 68(2), pages 443-455, March.
    4. Valletti, Tommaso M., 2006. "Differential pricing, parallel trade, and the incentive to invest," Journal of International Economics, Elsevier, vol. 70(1), pages 314-324, September.
    5. Alexandrov, Alexei & Deb, Joyee, 2012. "Price discrimination and investment incentives," International Journal of Industrial Organization, Elsevier, vol. 30(6), pages 615-623.
    6. Gene M. Grossman & Edwin L.-C. Lai, 2008. "Parallel imports and price controls," RAND Journal of Economics, RAND Corporation, vol. 39(2), pages 378-402.
    7. Katz, Michael L & Shapiro, Carl, 1985. "Network Externalities, Competition, and Compatibility," American Economic Review, American Economic Association, vol. 75(3), pages 424-440, June.
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    Keywords

    Parallel trade; Price discrimination; R&D investment; Intellectual property rights;

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