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Vertical Restraints and Parallel Imports with Differentiated Products

Author

Listed:
  • Teodora Cosac

    (Competition Bureau - Canada)

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.

Suggested Citation

  • Teodora Cosac, 2004. "Vertical Restraints and Parallel Imports with Differentiated Products," Industrial Organization 0401006, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpio:0401006
    Note: Type of Document - pdf; pages: 42
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    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/io/papers/0401/0401006.pdf
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    parallel imports; vertical restraints; product differentiation;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts

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