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Retailers as Agents and the Absence of Parallel Trade

Author

Listed:
  • Stähler, Frank
  • Maskus, Keith

Abstract

Legalized parallel trade implies that an original manufacturer cannot control a retailer in a foreign country once the latter has ordered its sales quantity and has compensated the former. This paper endogenizes the role of the retailer as an agent who has private information on the perceived quality of the good in the foreign country. Paradoxically, if parallel trade is permitted there will be no such trade in the only equilibrium, in which the manufacturer offers a smaller volume to the retailer than in the case where it is not permitted. This outcome makes both the original producer and foreign consumers worse off.

Suggested Citation

  • Stähler, Frank & Maskus, Keith, 2013. "Retailers as Agents and the Absence of Parallel Trade," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79737, Verein für Socialpolitik / German Economic Association.
  • Handle: RePEc:zbw:vfsc13:79737
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    References listed on IDEAS

    as
    1. 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.
    2. Maskus, Keith E. & Ganslandt, Mattias, 2007. "Intellectual Property Rights, Parallel Imports and Strategic Behavior," Working Paper Series 704, Research Institute of Industrial Economics.
    3. Raff, Horst & Schmitt, Nicolas, 2007. "Why parallel trade may raise producers' profits," Journal of International Economics, Elsevier, vol. 71(2), pages 434-447, April.
    4. Richardson, Martin, 2002. "An elementary proposition concerning parallel imports," Journal of International Economics, Elsevier, vol. 56(1), pages 233-245, January.
    5. Gene M. Grossman & Edwin L.-C. Lai, 2008. "Parallel imports and price controls," RAND Journal of Economics, RAND Corporation, vol. 39(2), pages 378-402.
    6. Ganslandt, Mattias & Maskus, Keith E., 2001. "Parallel imports of pharmaceutical products in the European Union," Policy Research Working Paper Series 2630, The World Bank.
    7. 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.
    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. Changying Li, 2006. "Competition, Parallel Imports And Cost-Reducing Innovation," Scottish Journal of Political Economy, Scottish Economic Society, vol. 53(3), pages 377-397, July.
    Full references (including those not matched with items on IDEAS)

    More about this item

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F15 - International Economics - - Trade - - - Economic Integration
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

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