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Analysis of gray markets in differentiated duopoly

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  • Hai Li
  • Stuart X. Zhu
  • Nanfang Cui
  • Jianbin Li

Abstract

In recent years, gray markets have become a significant phenomenon in the business practice. This paper investigates the gray markets issues in differentiated duopoly case by considering quantity competition among firms. We develop a game-theoretic model and provide equilibrium results for three scenarios, i.e. the benchmark scenario ‘no gray market’, the scenario ‘parallel imports act as a buffer against a follower’s product’ and the scenario ‘gray markets stimulate the competition’. By the analysis of the equilibrium results, some important managerial insights are obtained. Finally, by comparison of the equilibrium results among different scenarios, we study the impact of gray markets on manufacturers’ optimal strategies and profits in differentiated duopoly.

Suggested Citation

  • Hai Li & Stuart X. Zhu & Nanfang Cui & Jianbin Li, 2016. "Analysis of gray markets in differentiated duopoly," International Journal of Production Research, Taylor & Francis Journals, vol. 54(13), pages 4008-4027, July.
    • Handle: RePEc:taf:tprsxx:v:54:y:2016:i:13:p:4008-4027
    DOI: 10.1080/00207543.2016.1170906
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    References listed on IDEAS

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    Cited by:

    1. Li, Hai & Shao, Jing & Zhu, Stuart X., 2020. "Impacts of power dynamics and gray markets on supply chains," International Journal of Production Economics, Elsevier, vol. 222(C).
    2. Wang, Min & Huang, Hongfu & Liu, Feng, 2023. "To adapt or to standardize? Cross-market green product design under parallel importation impact," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 174(C).
    3. Li, Hai & Leng, Kaijun & Qing, Qiankai & Zhu, Stuart X., 2018. "Strategic interplay between store brand introduction and online direct channel introduction," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 118(C), pages 272-290.
    4. Li, Hai & Shao, Jing & Zhu, Stuart X., 2018. "Parallel importation in a supply Chain: The impact of gray market structure," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 114(C), pages 220-241.
    5. Evelyn O. Smith & Jeffrey D. Shulman, 2022. "Product diversion by vertically differentiated firms," Production and Operations Management, Production and Operations Management Society, vol. 31(5), pages 1928-1939, May.
    6. Shi, Xiutian & Tang, Jianxi & Dong, Ciwei, 2022. "Should a domestic firm carve out a niche in overseas markets? Value of purchasing agents," European Journal of Operational Research, Elsevier, vol. 300(1), pages 85-94.
    7. Wang, Yingjia & Lin, Jiaxin & Choi, Tsan-Ming, 2020. "Gray market and counterfeiting in supply chains: A review of the operations literature and implications to luxury industries," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 133(C).
    8. Huang, Hongfu & He, Yong & Chen, Jing, 2019. "Competitive strategies and quality to counter parallel importation in global market," Omega, Elsevier, vol. 86(C), pages 173-197.
    9. Zhang, Yong & Zhang, Sheng Hao & Feng, Haofang, 2021. "The impacts of money-back guarantees in the presence of parallel importation," European Journal of Operational Research, Elsevier, vol. 295(1), pages 170-182.
    10. Li, Hai & Qing, Qiankai & Wang, Juan & Hong, Xianpei, 2021. "An analysis of technology licensing and parallel importation under different market structures," European Journal of Operational Research, Elsevier, vol. 289(1), pages 132-143.
    11. Huang, Hongfu & He, Yong & Chen, Jing, 2020. "Cross-market selling channel strategies in an international luxury brand's supply chain with gray markets," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 144(C).

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