Vertical Price Control and Parallel Imports: Theory and Evidence

20 Pages Posted: 16 Sep 2004

See all articles by Keith E. Maskus

Keith E. Maskus

University of Colorado at Boulder - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Yongmin Chen

University of Colorado at Boulder - Department of Economics

Abstract

The paper analyzes parallel imports, or goods traded without the authorization of a trademark owner. Parallel imports have multiple causes, including vertical price control, which the authors model. A manufacturer selling its product through an independent agent sets the wholesale price sufficiently low to induce a desired retail price abroad. This permits the agent to sell the product profitably in the originating market. Combined social surplus decreases and then increases in the cost of parallel trade. Restricting parallel imports benefits the manufacturer, but could raise or reduce global surplus. The econometric analysis indicates that the vertical-control explanation of parallel imports is important.

Suggested Citation

Maskus, Keith E. and Chen, Yongmin, Vertical Price Control and Parallel Imports: Theory and Evidence. Review of International Economics, Vol. 12, No. 4, pp. 551-570, September 2004. Available at SSRN: https://ssrn.com/abstract=591382

Keith E. Maskus

University of Colorado at Boulder - Department of Economics ( email )

Campus Box 256
Boulder, CO 80309
United States
303-492-7588 (Phone)
303-492-8960 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Yongmin Chen (Contact Author)

University of Colorado at Boulder - Department of Economics ( email )

Campus Box 256
Boulder, CO 80309-0256
United States
303-492-8736 (Phone)
303-492-8960 (Fax)

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