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Does Parallel Trade Freedom Harm Consumers in Small Markets?

Frank Müller-Langer ()
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Frank Müller-Langer: Max Planck Institute for Intellectual Property, Competition and Tax Law, Munich, Germany

Authors registered in the RePEc Author Service: Mueller-Langer ()

Croatian Economic Survey, 2009, vol. 11, issue 1, 11-41

Abstract: Countries can freely decide whether to permit or ban parallel trade. Article 6 of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement) – being the only provision in the various international agreements on intellectual property rights that deals with the treatment of parallel trade – preserves the territorial privilege for regulating parallel trade. In a parallel trade model with two heterogeneous countries in terms of market size, we address the question as to whether parallel trade freedom is beneficial or detrimental from a consumer’s perspective. In particular, the model suggests that parallel trade freedom is detrimental to consumers in the country with the smaller market as less of a certain product is sold at a higher price. However, parallel trade freedom is likely to be beneficial to consumers in the country with the larger market. We also find that the smaller country, in terms of market size, will remain unserved under parallel trade freedom if the second country is sufficiently attractive in terms of market size.

Keywords: parallel trade; economic analysis of intellectual property rights (search for similar items in EconPapers)
JEL-codes: K33 O34 (search for similar items in EconPapers)
Date: 2009
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