Parallel imports, demand dispersion, and international price discrimination

Abstract

Parallel imports, goods imported by unauthorized resellers, are advocated worldwide for undermining international price discrimination. For a continuum of markets, we find that uniform pricing by a monopolist yields lower global welfare than third-degree discrimination if demand dispersion across markets is ‘large’: though uniform pricing avoids output misallocation, too many markets go unserved. Mixed systems, permitting discrimination across but not within designated groups of markets, yield significantly higher welfare than uniform pricing or unrestricted multimarket discrimination, and can Pareto dominate uniform pricing. Thus, while parallel imports might benefit some countries, our results weaken the (multilateral) case for allowing them.