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Vertical Restraints and Parallel Imports with Differentiated Products

  • Teodora Cosac

    (Competition Bureau - Canada)

Registered author(s):

    A monopoly selling in two countries can use exclusive or competitive retailers to distribute its product. A low wholesale price in one country might induce a retailer to resell the good for profit in the other country, generating thereby parallel imports which compete with the authorized sales. Assuming that consumers consider the authorized good to be of higher quality than the parallel import, we show that it is often in the interest of the manufacturer to encourage the availability of parallel imported goods. We study equilibrium price strategies for the manufacturer as reflected in the chosen vertical contracts. We show that when the arbitrage cost is relatively low and the authorized good and the parallel import are poor substitutes, manufacturer's profits can be higher when parallel imports are allowed.

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    Paper provided by EconWPA in its series Industrial Organization with number 0401006.

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    Length: 42 pages
    Date of creation: 14 Jan 2004
    Date of revision:
    Handle: RePEc:wpa:wuwpio:0401006
    Note: Type of Document - pdf; pages: 42
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    1. Raymond J. Deneckere & R. Preston McAfee, 1996. "Damaged Goods," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 5(2), pages 149-174, 06.
    2. Anderson, Simon P & Ginsburgh, Victor A, 1999. "International Pricing with Costly Consumer Arbitrage," Review of International Economics, Wiley Blackwell, vol. 7(1), pages 126-39, February.
    3. Motta, Massimo, 1993. "Endogenous Quality Choice: Price vs. Quantity Competition," Journal of Industrial Economics, Wiley Blackwell, vol. 41(2), pages 113-31, June.
    4. J. S. Chard & C. J. Mellor, 1989. "Intellectual Property Rights and Parallel Imports," The World Economy, Wiley Blackwell, vol. 12(1), pages 69-84, 03.
    5. Reza Ahmadi & B. Rachel Yang, 2000. "Parallel Imports: Challenges from Unauthorized Distribution Channels," Marketing Science, INFORMS, vol. 19(3), pages 279-294, March.
    6. Malueg, D.A. & Schwartz, M., 1993. "Parallel Imports, Demand Dispersion and International Price Discrimination," Papers 93-6, U.S. Department of Justice - Antitrust Division.
    7. Nancy T. Gallini & Aidan Hollis, 1996. "A Contractual Approach to the Gray Market," Working Papers gallini-96-01, University of Toronto, Department of Economics.
    8. 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.
    9. Keith E. Maskus, 2000. "Parallel Imports," The World Economy, Wiley Blackwell, vol. 23(9), pages 1269-1284, 09.
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