Parallel Imports in a Model of Vertical Distribution: Theory, Evidence and Policy
16 Pages Posted: 15 Feb 2003
Parallel imports are goods traded without the authorization of an original trademark or copyright owner. In this paper, a model where parallel imports arise because of incentive problems in vertical distributions is discussed. A distributor receiving goods from a manufacturer at a low wholesale price can profitably sell the goods in another country, outside the authorized distribution channel. The manufacturer can limit such parallel imports by raising wholesale prices, but this reduces vertical pricing efficiency. Parallel imports can thus occur in equilibrium. The model is supported by empirical evidence from existing studies and new econometric work. Policy implications of the analysis are discussed.
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