The Strategic Effects of Parallel Trade～Market stealing and wage cutting～

Arijit Mukherjee and Laixun Zhao

No DP2010-09, Discussion Paper Series from Research Institute for Economics & Business Administration, Kobe University

Abstract: Why do producers often accept parallel trade in some markets such as automobiles, clothing, toys and consumer electronics? This paper identifies two new factors, viz., market stealing and union-wage cutting, which may make parallel trading beneficial to a manufacturer. Specifically, (i) under perfectly competitive labour markets in both the home and foreign countries, parallel trade may help a manufacturer to steal market shares from competitors, if it is more cost efficient or sells in more markets than competitors; and (ii) in a unionized labour market, parallel trade may help by lowering the unionized wage. These benefits of parallel trade disappear when such factors are removed.

Keywords: Firm-asymmetry; Labour Union; Parallel import (search for similar items in EconPapers)
JEL-codes: F21 F23 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2010-03
New Economics Papers: this item is included in nep-lab
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