IDEAS home Printed from https://ideas.repec.org/a/taf/tprsxx/v54y2016i13p4008-4027.html
   My bibliography  Save this article

Analysis of gray markets in differentiated duopoly

Author

Listed:
  • 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
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/00207543.2016.1170906
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/00207543.2016.1170906?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Yongmin Chen & Keith Maskus, 2005. "Vertical Pricing and Parallel Imports," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 14(1), pages 1-18.
    2. Motta, Massimo, 1993. "Endogenous Quality Choice: Price vs. Quantity Competition," Journal of Industrial Economics, Wiley Blackwell, vol. 41(2), pages 113-131, June.
    3. Raff, Horst & Schmitt, Nicolas, 2007. "Why parallel trade may raise producers' profits," Journal of International Economics, Elsevier, vol. 71(2), pages 434-447, April.
    4. Li, Changying & Robles, Jack, 2007. "Product innovation and parallel trade," International Journal of Industrial Organization, Elsevier, vol. 25(2), pages 417-429, April.
    5. Avner Shaked & John Sutton, 1982. "Relaxing Price Competition Through Product Differentiation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 49(1), pages 3-13.
    6. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
    7. Reza Ahmadi & B. Rachel Yang, 2000. "Parallel Imports: Challenges from Unauthorized Distribution Channels," Marketing Science, INFORMS, vol. 19(3), pages 279-294, March.
    8. Ying Xiao & Udatta Palekar & Yunchuan Liu, 2011. "Shades of gray—the impact of gray markets on authorized distribution channels," Quantitative Marketing and Economics (QME), Springer, vol. 9(2), pages 155-178, June.
    9. Jeffrey D. Shulman, 2014. "Product Diversion to a Direct Competitor," Marketing Science, INFORMS, vol. 33(3), pages 422-436, May.
    10. Eitan Gerstner & Duncan Holthausen, 1986. "Profitable Pricing When Market Segments Overlap," Marketing Science, INFORMS, vol. 5(1), pages 55-69.
    11. Shantanu Dutta & Mark Bergen & George John, 1994. "The Governance of Exclusive Territories When Dealers can Bootleg," Marketing Science, INFORMS, vol. 13(1), pages 83-99.
    12. Yasukazu Ichino, 2014. "Parallel imports and piracy in a North-South model," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 23(4), pages 511-539, June.
    13. Ming Hu & J. Michael Pavlin & Mengze Shi, 2013. "When Gray Markets Have Silver Linings: All-Unit Discounts, Gray Markets, and Channel Management," Manufacturing & Service Operations Management, INFORMS, vol. 15(2), pages 250-262, May.
    14. Stefan Szymanski & Tommaso Valletti, 2005. "Parallel trade, price discrimination, investment and price caps [‘First report (final) to the Committee on International Trade Law of the International Law Association on the subject of parallel im," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 20(44), pages 706-749.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    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).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Zhang, Jianqiang, 2016. "The benefits of consumer rebates: A strategy for gray market deterrence," European Journal of Operational Research, Elsevier, vol. 251(2), pages 509-521.
    2. 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.
    3. Xu, Lei & Choi, Tsan-Ming & Shi, Xiaoran & Zhou, Chi, 2024. "Gray marketing phenomena in global supply chains: Can pricing strategies help?," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 187(C).
    4. 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).
    5. Ying Xiao & Udatta Palekar & Yunchuan Liu, 2011. "Shades of gray—the impact of gray markets on authorized distribution channels," Quantitative Marketing and Economics (QME), Springer, vol. 9(2), pages 155-178, June.
    6. Xueying Liu & Amit Pazgal, 2021. "The Impact of Gray Markets on Product Quality and Profitability," Customer Needs and Solutions, Springer;Institute for Sustainable Innovation and Growth (iSIG), vol. 7(3), pages 62-73, October.
    7. Xueying Liu & Amit Pazgal, 2020. "The Impact of Gray Markets on Product Quality and Profitability," Customer Needs and Solutions, Springer;Institute for Sustainable Innovation and Growth (iSIG), vol. 7(3), pages 62-73, October.
    8. Ishikawa, Jota & Morita, Hodaka & Mukunoki, Hiroshi, 2020. "Parallel imports and repair services," Journal of Economic Behavior & Organization, Elsevier, vol. 172(C), pages 137-160.
    9. Foad Iravani & Hamed Mamani & Emisa Nategh, 2020. "External Reference Pricing and Parallel Imports of Pharmaceuticals: A Policy Comparison," Production and Operations Management, Production and Operations Management Society, vol. 29(12), pages 2716-2735, December.
    10. Shen Guo & Bin Hu & Hai Zhong, 2013. "Impact of parallel trade on pharmaceutical firm’s profits: rise or fall?," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 14(2), pages 345-355, April.
    11. Iravani, Foad & Dasu, Sriram & Ahmadi, Reza, 2016. "Beyond price mechanisms: How much can service help manage the competition from gray markets?," European Journal of Operational Research, Elsevier, vol. 252(3), pages 789-800.
    12. Yushi Tsunoda, 2022. "When should a firm set its selling price to cope with gray market trade?," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(1), pages 16-25, January.
    13. Zhongju Zhang & Juan Feng, 2017. "Price of Identical Product with Gray Market Sales: An Analytical Model and Empirical Analysis," Information Systems Research, INFORMS, vol. 28(2), pages 397-412, June.
    14. 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).
    15. 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.
    16. Ya‐chin Wang & Leonard F.s. Wang, 2009. "Equivalence Of Competition Mode In A Vertically Differentiated Duopoly With Delegation," South African Journal of Economics, Economic Society of South Africa, vol. 77(4), pages 577-590, December.
    17. Olivier Bonroy, 2006. "Le standard de qualité minimale est-il un instrument socialement optimal ?. Une revue de littérature," Revue économique, Presses de Sciences-Po, vol. 57(1), pages 35-53.
    18. L. Colombo & L. Lambertini, 2003. "Dynamic Advertising Under Vertical Product Differentiation," Journal of Optimization Theory and Applications, Springer, vol. 119(2), pages 261-280, November.
    19. Cellini, Roberto & Siciliani, Luigi & Straume, Odd Rune, 2018. "A dynamic model of quality competition with endogenous prices," Journal of Economic Dynamics and Control, Elsevier, vol. 94(C), pages 190-206.
    20. Lutz, Stefan H., 2002. "The Effects of Quotas on Vertical Intra-Industry Trade," ZEW Discussion Papers 02-61, ZEW - Leibniz Centre for European Economic Research.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:tprsxx:v:54:y:2016:i:13:p:4008-4027. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/TPRS20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.