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Smuggling, Camouflaging, and Market Structure

  • Richard A. Jensen
  • Jerry Thursby
  • Marie Thursby

We 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 1975-1982.

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File URL: http://www.nber.org/papers/w2630.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2630.

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Date of creation: Jun 1988
Date of revision:
Publication status: published as The Quarterly Journal of Economics, Vol. 106, No. 3, pp. 789-814, (August 1991).
Handle: RePEc:nbr:nberwo:2630
Note: ITI IFM
Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Phone: 617-868-3900
Web page: http://www.nber.org
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  1. 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.
  2. Gene M. Grossman & Carl Shapiro, 1986. "Foreign Counterfeiting of Status Goods," NBER Working Papers 1915, National Bureau of Economic Research, Inc.
  3. 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.
  4. Deardorff, A.V. & Stolper, W.F., 1988. "Effects Of Smuggling Under African Conditions: A Factual, Institutional And Analytic Discussion," Working Papers 230, Research Seminar in International Economics, University of Michigan.
  5. 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.
  6. Pitt, Mark M., 1981. "Smuggling and price disparity," Journal of International Economics, Elsevier, vol. 11(4), pages 447-458, November.
  7. Ethier, Wilfred J, 1986. "Illegal Immigration: The Host-Country Problem," American Economic Review, American Economic Association, vol. 76(1), pages 56-71, March.
  8. Appelbaum, Elie, 1982. "The estimation of the degree of oligopoly power," Journal of Econometrics, Elsevier, vol. 19(2-3), pages 287-299, August.
  9. Sheikh, Munir A., 1974. "Smuggling, production and welfare," Journal of International Economics, Elsevier, vol. 4(4), pages 355-364, November.
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