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Vertical Restraints and Parallel Imports with Differentiated Products

Author

Listed:
  • Teodora Cosac

    (Competition Bureau - Canada)

Abstract

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.

Suggested Citation

  • Teodora Cosac, 2004. "Vertical Restraints and Parallel Imports with Differentiated Products," Industrial Organization 0401006, EconWPA.
  • Handle: RePEc:wpa:wuwpio:0401006 Note: Type of Document - pdf; pages: 42
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    File URL: http://econwpa.repec.org/eps/io/papers/0401/0401006.pdf
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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. Keith E. Maskus, 2000. "Parallel Imports," The World Economy, Wiley Blackwell, vol. 23(9), pages 1269-1284, September.
    3. Gallini, Nancy T. & Hollis, Aidan, 1999. "A contractual approach to the gray market," International Review of Law and Economics, Elsevier, vol. 19(1), pages 1-21, March.
    4. Anderson, Simon P & Ginsburgh, Victor A, 1999. "International Pricing with Costly Consumer Arbitrage," Review of International Economics, Wiley Blackwell, vol. 7(1), pages 126-139, February.
    5. Motta, Massimo, 1993. "Endogenous Quality Choice: Price vs. Quantity Competition," Journal of Industrial Economics, Wiley Blackwell, vol. 41(2), pages 113-131, June.
    6. 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.
    7. Raymond J. Deneckere & R. Preston McAfee, 1996. "Damaged Goods," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 5(2), pages 149-174, June.
    8. 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.
    9. Reza Ahmadi & B. Rachel Yang, 2000. "Parallel Imports: Challenges from Unauthorized Distribution Channels," Marketing Science, INFORMS, vol. 19(3), pages 279-294, March.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    parallel imports; vertical restraints; product differentiation;

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts

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