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Parallel trade, product quality, and welfare

  • 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")

Registered author(s):

    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 consumersÕ 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.

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    File URL: http://www.dis.uniroma1.it/~bibdis/RePEc/aeg/report/2013-14.pdf
    File Function: Revised version, 2013
    Download Restriction: no

    Paper provided by Department of Computer, Control and Management Engineering, Universita' degli Studi di Roma "La Sapienza" in its series DIAG Technical Reports with number 2013-14.

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    Length: 13 pages
    Date of creation: 2013
    Date of revision:
    Handle: RePEc:aeg:report:2013-14
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    Web page: http://www.dis.uniroma1.it
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    1. Grossman, Gene & Lai, Edwin, 2006. "Parallel Imports and Price Controls," CEPR Discussion Papers 5779, C.E.P.R. Discussion Papers.
    2. Malueg, D.A. & Schwartz, M., 1993. "Parallel Imports, Demand Dispersion and International Price Discrimination," Papers 93-6, U.S. Department of Justice - Antitrust Division.
    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. 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, 09.
    5. Alexandrov, Alexei & Deb, Joyee, 2012. "Price discrimination and investment incentives," International Journal of Industrial Organization, Elsevier, vol. 30(6), pages 615-623.
    6. Katz, Michael L & Shapiro, Carl, 1985. "Network Externalities, Competition, and Compatibility," American Economic Review, American Economic Association, vol. 75(3), pages 424-40, June.
    7. 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.
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