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Parallel Imports, Market Size and Investment Incentive

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  • Alfons Palangkaraya

    (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne)

  • Jongsay Yong

    () (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne)

Abstract

We use a vertical control model with a two-part tariff pricing and a leader-follower competition to investigate some conditions which may prevent the occurrence of parallel importing even when such activity is legally permitted and the effects of parallel importing on the incentive to invest in market development effort for an authorised distributor faced with competition from parallel imported products. We find that parallel imports cannot arise if the target and the source market either differ too greatly or are too similar in size. Also, both the presence of parallel imported products and the threat of such presence reduce the domestic distributor’s market development investment. JEL Classification: L11, F13, 034

Suggested Citation

  • Alfons Palangkaraya & Jongsay Yong, 2006. "Parallel Imports, Market Size and Investment Incentive," Melbourne Institute Working Paper Series wp2006n25, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
  • Handle: RePEc:iae:iaewps:wp2006n25
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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, vol. 37(3-4), pages 167-195, November.
    2. Szymanski, Stefan & Valletti, Tommaso, 2005. "Parallel Trade, International Exhaustion and Intellectual Property Rights: A Welfare Analysis," CEPR Discussion Papers 5022, C.E.P.R. Discussion Papers.
    3. Richardson, Martin, 2002. "An elementary proposition concerning parallel imports," Journal of International Economics, Elsevier, vol. 56(1), pages 233-245, January.
    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, September.
    5. N/A, 2000. "The world economy," National Institute Economic Review, National Institute of Economic and Social Research, vol. 173(1), pages 3-3, July.
    6. N/A, 2000. "The World Economy," National Institute Economic Review, National Institute of Economic and Social Research, vol. 173(1), pages 43-65, July.
    7. J. S. Chard & C. J. Mellor, 1989. "Intellectual Property Rights and Parallel Imports," The World Economy, Wiley Blackwell, vol. 12(1), pages 69-84, March.
    8. N/A, 2000. "The world economy," National Institute Economic Review, National Institute of Economic and Social Research, vol. 174(1), pages 3-3, October.
    9. N/A, 2000. "The world economy," National Institute Economic Review, National Institute of Economic and Social Research, vol. 172(1), pages 3-3, April.
    10. Abbott, Frederick M, 1998. "First Report (Final) to the Committee on International Trade Law of the International Law Association on the Subject of Parallel Importation," Journal of International Economic Law, Oxford University Press, vol. 1(4), pages 607-636, December.
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    More about this item

    Keywords

    parallel imports; vertical control; intellectual property;

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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