Parallel Imports, their Deterrence and Accommodation with Service Differentiation

Sungho Yun

The International Trade Journal, 2017, vol. 31, issue 3, 217-231

Abstract: In the traditional economics models, parallel imports prevent a manufacturer from price discrimination involving the same good between countries. As a result, the manufacturer loses profit and tries to discourage parallel imports. The consumers in low-price countries also lose when parallel imports are legalized because the price in such countries increases. When value-added services such as a warranty and technical support are available only for the authorized product (i.e., when services are differentiated), however, the manufacturer may obtain a larger profit with parallel imports, as shown in literature. We extend this study by analyzing the case in which the manufacturer can choose the level of value-added services. It turns out that the manufacturer may even encourage parallel imports when the cost for value-added services is not too low or too high. We also show that the consumers in low-price countries may gain when parallel imports are legalized.

Date: 2017
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DOI: 10.1080/08853908.2016.1269700

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