Vertical Restraints and Parallel Imports with Differentiated Products

Teodora Cosac
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Teodora Cosac: Competition Bureau - Canada

Industrial Organization from EconWPA

Abstract: A monopoly selling in two countries can use exclusive or competitive retailers to distribute its product. A low wholesale price in one country might induce a retailer to resell the good for profit in the other country, generating thereby parallel imports which compete with the authorized sales. Assuming that consumers consider the authorized good to be of higher quality than the parallel import, we show that it is often in the interest of the manufacturer to encourage the availability of parallel imported goods. We study equilibrium price strategies for the manufacturer as reflected in the chosen vertical contracts. We show that when the arbitrage cost is relatively low and the authorized good and the parallel import are poor substitutes, manufacturer's profits can be higher when parallel imports are allowed.

Keywords: parallel imports; vertical restraints; product differentiation (search for similar items in EconPapers)
JEL-codes: L13 L42 (search for similar items in EconPapers)
Date: 2004-01-14
Note: Type of Document - pdf; pages: 42
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpio:0401006

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