IDEAS home Printed from https://ideas.repec.org/p/zbw/cauewp/2990.html

Why Parallel Trade May Raise Producers' Profits

Author

Listed:
  • Raff, Horst
  • Schmitt, Nicolas

Abstract

This paper shows that a manufacturer may benefit from parallel trade. In addition to an intuitive condition about the effect of demand shocks, this occurs when competitive retailers must order inventories before they know the realization of demand and for products whose sale value drops at the end of the demand period. For these types of products, letting retailers trade unsold inventories generally results in larger orders placed with the manufacturer, higher manufacturer profit and higher consumer surplus. The model provides a simple explanation as to why the volume of parallel trade is now very large and accepted by manufacturers for some products such as automobiles, clothes, toys, consumer electronics, musical recordings, cosmetics and perfumes.

Suggested Citation

  • Raff, Horst & Schmitt, Nicolas, 2005. "Why Parallel Trade May Raise Producers' Profits," Economics Working Papers 2005-07, Christian-Albrechts-University of Kiel, Department of Economics.
    • Handle: RePEc:zbw:cauewp:2990
    as

    Download full text from publisher

    File URL: https://www.econstor.eu/bitstream/10419/21995/1/EWP-2005-07.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. 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.
    2. Martin Richardson, 2017. "An Elementary Proposition Concerning Parallel Imports," World Scientific Book Chapters, in: Dimensions of Trade Policy, chapter 14, pages 285-299, World Scientific Publishing Co. Pte. Ltd..
    3. Daniel Knox & Martin Richardson, 2017. "Trade Policy and Parallel Imports," World Scientific Book Chapters, in: Dimensions of Trade Policy, chapter 15, pages 301-325, World Scientific Publishing Co. Pte. Ltd..
    4. Reza Ahmadi & B. Rachel Yang, 2000. "Parallel Imports: Challenges from Unauthorized Distribution Channels," Marketing Science, INFORMS, vol. 19(3), pages 279-294, March.
    5. Deneckere, Raymond & Marvel, Howard P & Peck, James, 1997. "Demand Uncertainty and Price Maintenance: Markdowns as Destructive Competition," American Economic Review, American Economic Association, vol. 87(4), pages 619-641, September.
    6. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
    7. Keith E. Maskus, 2000. "Parallel Imports," The World Economy, Wiley Blackwell, vol. 23(9), pages 1269-1284, September.
    8. 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.
    9. Yongmin Chen, 2005. "Vertical Disintegration," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 14(1), pages 209-229, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Teodora Cosac, 2004. "Vertical Restraints and Parallel Imports with Differentiated Products," Industrial Organization 0401006, University Library of Munich, Germany.
    2. Santanu Roy & Kamal Saggi, 2023. "Equilibrium parallel import policies and international market structure," World Scientific Book Chapters, in: Kamal Saggi (ed.), Technology Transfer, Foreign Direct Investment, and the Protection of Intellectual Property in the Global Economy, chapter 15, pages 349-363, World Scientific Publishing Co. Pte. Ltd..
    3. Frank Müller-Langer, 2009. "Does Parallel Trade Freedom Harm Consumers in Small Markets?," Croatian Economic Survey, The Institute of Economics, Zagreb, vol. 11(1), pages 11-41, April.
    4. Noriaki Matsushima & Toshihiro Matsumura, 2010. "Profit-Enhancing Parallel Imports," Open Economies Review, Springer, vol. 21(3), pages 433-447, July.
    5. Arijit Mukherjee & Laixun Zhao, 2012. "Profitable parallel trade in unionized markets," Journal of Economics, Springer, vol. 107(3), pages 267-276, November.
    6. Braouezec, Yann, 2012. "Customer-class pricing, parallel trade and the optimal number of market segments," International Journal of Industrial Organization, Elsevier, vol. 30(6), pages 605-614.
    7. Mattias Ganslandt & Keith E. Maskus, 2007. "Wholesale Price Discrimination and Parallel Imports," CESifo Working Paper Series 1951, CESifo.
    8. Ganslandt, Mattias & Maskus, Keith E., 2007. "Vertical distribution, parallel trade, and price divergence in integrated markets," European Economic Review, Elsevier, vol. 51(4), pages 943-970, May.
    9. Mueller-Langer, Frank, 2010. "An analysis of the ambiguous welfare effects of parallel trade freedom," MPRA Paper 35704, University Library of Munich, Germany.
    10. Ishikawa, Jota & Morita, Hodaka & Mukunoki, Hiroshi, 2020. "Parallel imports and repair services," Journal of Economic Behavior & Organization, Elsevier, vol. 172(C), pages 137-160.
    11. Raimondos-Møller, Pascalis & Schmitt, Nicolas, 2010. "Commodity taxation and parallel imports," Journal of Public Economics, Elsevier, vol. 94(1-2), pages 153-162, February.
    12. Kamal Saggi, 2014. "Regional exhaustion of intellectual property," International Journal of Economic Theory, The International Society for Economic Theory, vol. 10(1), pages 125-137, March.
    13. Xueying Liu & Amit Pazgal, 2021. "The Impact of Gray Markets on Product Quality and Profitability," Customer Needs and Solutions, Springer;Institute for Sustainable Innovation and Growth (iSIG), vol. 7(3), pages 62-73, October.
    14. Bordoy, Catalina & Jelovac, Izabela, 2003. "Pricing and Welfare of Parallel Imports in the Pharmaceutical Industry," Research Memorandum 004, Maastricht University, Maastricht Economic Research Institute on Innovation and Technology (MERIT).
    15. Kamal Saggi, 2013. "Market Power in the Global Economy: The Exhaustion and Protection of Intellectual Property," Economic Journal, Royal Economic Society, vol. 123(567), pages 131-161, March.
    16. Xueying Liu & Amit Pazgal, 2020. "The Impact of Gray Markets on Product Quality and Profitability," Customer Needs and Solutions, Springer;Institute for Sustainable Innovation and Growth (iSIG), vol. 7(3), pages 62-73, October.
    17. Santanu Roy & Kamal Saggi, 2012. "Strategic competition and optimal parallel import policy," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 45(4), pages 1369-1396, November.
    18. Frank Mueller-Langer, 2014. "Copyright and parallel trade," Chapters, in: Richard Watt (ed.), Handbook on the Economics of Copyright, chapter 16, pages 287-310, Edward Elgar Publishing.
    19. Izabela Jelovac & Catalina Bordoy, 2005. "Pricing and Welfare Implications of Parallel Imports in the Pharmaceutical Industry," International Journal of Health Economics and Management, Springer, vol. 5(1), pages 5-21, January.
    20. Nikolaos Zevgolis & Panagiotis Fotis, 2014. "Prohibition of parallel imports as a vertical restraint: per se approach or a misunderstanding?," European Journal of Law and Economics, Springer, vol. 38(2), pages 317-342, October.

    More about this item

    Keywords

    ;
    ;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    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:zbw:cauewp:2990. See general information about how to correct material in RePEc.

    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.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with 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.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ZBW - Leibniz Information Centre for Economics (email available below). General contact details of provider: https://edirc.repec.org/data/vakiede.html .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.