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Renting Goodwill in International Marketing Channels: An Analysis of Pricing Strategies and Bargaining Power

Carlyle Farrell and Gervan Fearon

Atlantic Economic Journal, 2005, vol. 33, issue 3, 285-296

Abstract: This paper investigates the pricing decisions of foreign manufacturers in international markets within a bargaining framework with asymmetric information and the rental of goodwill. The key findings are: first, the foreign manufacturer follows a mark-up pricing strategy in which its gross margin and the quality premium over the domestic product are shared with the importer. Second, a manufacturer–importer contract occurs only when the manufacturer’s bargaining power is within an admissible range which shrinks as transaction costs increase. Third, the domestic consumer will only purchase the foreign product if the importer’s goodwill in the domestic market is sufficiently large to signal quality. The paper contributes to the literature on exchange relationships between foreign manufacturers and importers. Copyright International Atlantic Economic Society 2005

Keywords: C70; D40; FO (search for similar items in EconPapers)
Date: 2005
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Handle: RePEc:kap:atlecj:v:33:y:2005:i:3:p:285-296