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Title:Why Parallel Trade May Raise Producers' Profits PDF Logo
Authors:Raff, Horst
Schmitt, Nicolas
Issue Date:2005
Series/Report no.:Economics working paper / Christian-Albrechts-Universität Kiel, Department of Economics 2005,07
Abstract:This paper shows that a manufacturer may benefit from parallel trade. In addition to an intuitive condition about the effect of demand shocks, this occurs when competitive retailers must order inventories before they know the realization of demand and for products whose sale value drops at the end of the demand period. For these types of products, letting retailers trade unsold inventories generally results in larger orders placed with the manufacturer, higher manufacturer profit and higher consumer surplus. The model provides a simple explanation as to why the volume of parallel trade is now very large and accepted by manufacturers for some products such as automobiles, clothes, toys, consumer electronics, musical recordings, cosmetics and perfumes.
Subjects:parallel trade
distribution
JEL:F12
Document Type:Working Paper
Appears in Collections:Economics Working Papers, Department of Economics, CAU Kiel

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