Abstract
In a North–South vertically differentiated duopoly we analyze (i) the effects of parallel import (PI) policies on price competition and (ii) the interdependence of national PI policies. Prices can be higher in the North if both countries permit PIs relative to when only the South does. If governments maximize national welfare and demand asymmetry across countries is sufficiently large, the North forbids PIs to ensure its firm sells in the South and international price discrimination — the South's most preferred market outcome — obtains. When demand structures are relatively similar across countries, the North permits PIs and uniform pricing — its most preferred outcome — results.
Highlights
Parallel trade is said to occur when a product protected by some form of intellectual property rights (IPRs) o¤ered for sale by the rights holder in one country is re-sold in another country without the right holder’s consent
It is noteworthy that current multilateral rules of the World Trade Organization (WTO) are essentially silent on the issue of parallel trade, leaving member countries free to determine the legality of such trade in their respective markets
What role does heterogeneity in demand structure across countries play in determining equilibrium parallel import policies? How does a country’s preferred policy depend upon that of its trading partners? What policies do governments implement when ...rms respond to their policies by choosing whether or not to o¤er their products for sale in foreign markets? What kind of international externalities, if any, are created by the implementation of parallel import policies based purely on national interest? We address these questions in a North-South model in which countries di¤er with respect to their domestic demand structure as well as the quality of goods produced by their respective ...rms
Summary
Parallel trade is said to occur when a product protected by some form of intellectual property rights (IPRs) o¤ered for sale by the rights holder in one country is re-sold in another country without the right holder’s consent. The two approaches di¤er at the price competition stage because in the alternative speci...cation an outcome where ...rm i ...nds it pro...table to abandon the market in country j – for instance, when parallel import policies prevent price discrimination and the market in country j is too small or the degree of market competition is too severe or both –could be consistent with a continuum of pricing equilibria where ...rm i’s foreign price (at which it sells zero in country j) still a¤ects the demand for ...rm j’s product and places a ceiling on the market power of ...rm j These equilibria will di¤er with respect to the price at which consumers buy in country j and in terms of the welfare that they generate.
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