Parallel Imports, Market Size and Investment Incentive

The Singapore Economic Review, Vol. 54, Issue 2, pp. 167-181, 2009

Posted: 10 Nov 2009

See all articles by Alfons Palangkaraya

Alfons Palangkaraya

Centre for Transformative Innovation, Faculty of Business and Law, Swinburne University of Technology

Jongsay Yong

University of Melbourne - Melbourne Institute: Applied Economic & Social Research

Date Written: June 1, 2009

Abstract

This paper proposes a vertical control model that features two-part tariff pricing, leader-fringe-follower competition, and investment to characterize the conditions under which parallel imports will (or will not) occur when such activities are legally permitted. In addition, we analyze the effects of parallel imports on the incentive of an authorized distributor to invest in market development. We find that parallel imports cannot arise if the target and the source market either differ too greatly or are too similar in size. Two results are worth emphasizing. First, parallel imports can arise even if the IP owner has the ability to deter parallel imports. Second, the presence of parallel imports and even the threat posed by parallel imports can reduce the domestic distributor's market development investment.

Keywords: parallel imports, vertical control, Intellectual Property (IP) law

Suggested Citation

Palangkaraya, Alfons and Yong, Jongsay, Parallel Imports, Market Size and Investment Incentive (June 1, 2009). The Singapore Economic Review, Vol. 54, Issue 2, pp. 167-181, 2009, Available at SSRN: https://ssrn.com/abstract=1502424

Alfons Palangkaraya

Centre for Transformative Innovation, Faculty of Business and Law, Swinburne University of Technology ( email )

AGSE Building
Room 117
Hawthorne, Victoria 3121
Australia
+61392145826 (Phone)

Jongsay Yong (Contact Author)

University of Melbourne - Melbourne Institute: Applied Economic & Social Research ( email )

Level 5, FBE Building, 111 Barry Street
Parkville, Victoria 3010
Australia
+613-83445354 (Phone)
+613-83445630 (Fax)

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