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Vertical Price Control and Parallel Imports: Theory and Evidence
Author(s) -
Maskus Keith E.,
Chen Yongmin
Publication year - 2004
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/j.1467-9396.2004.00467.x
Subject(s) - product (mathematics) , economic surplus , economics , control (management) , trademark , authorization , microeconomics , grey market , vertical integration , commerce , international economics , monetary economics , industrial organization , market economy , computer science , geometry , mathematics , management , computer security , welfare , operating system
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.