IDEAS home Printed from https://ideas.repec.org/p/bep/dewple/2008-1-1225.html
   My bibliography  Save this paper

An Analysis of the Welfare Effects of Parallel Trade Freedom

Author

Listed:
  • Frank Müller-Langer

    (University of Heidelberg)

Abstract

In a double marginalization model which is played between a domestic monopolistic manufacturer of pharmaceuticals and a foreign exclusive distributor, I examine the impact of parallel trade freedom on the manufacturer's profit. I also analyze its impact on global welfare for low, intermediate, and high trade costs and different levels of heterogeneity of the two countries where the manufacturer and the distributor are located.The model suggests that parallel trade - provided that it is a credible threat - reduces the profit of the manufacturer and thus reduces his incentives to invest in R&D. If, however, trade costs are high, parallel trade is a non-credible threat as it is not a worthwhile business activity for the foreign distributor and thus does not have any impact on the profit of the manufacturer.The model shows that parallel trade has positive welfare properties if the two countries are sufficiently heterogeneous in terms of market size and if trade costs are intermediate and low, respectively. If, however, the countries are virtually homogenous in terms of market size, parallel trade may be detrimental to global welfare for specific levels of trade costs.

Suggested Citation

  • Frank Müller-Langer, "undated". "An Analysis of the Welfare Effects of Parallel Trade Freedom," German Working Papers in Law and Economics 2008-1-1225, Berkeley Electronic Press.
  • Handle: RePEc:bep:dewple:2008-1-1225
    Note: oai:bepress:
    as

    Download full text from publisher

    File URL: http://www.bepress.com/cgi/viewcontent.cgi?article=1225&context=gwp
    Download Restriction: no

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Mueller-Langer, Frank, 2009. "Does parallel trade freedom harm consumers in small markets?," MPRA Paper 40194, University Library of Munich, Germany.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bep:dewple:2008-1-1225. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christopher F. Baum). General contact details of provider: http://www.bepress.com/gwp/default/ .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.