Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/81302
Authors: 
Ganslandt, Mattias
Maskus, Keith E.
Year of Publication: 
2005
Series/Report no.: 
IUI Working Paper 639
Abstract: 
We develop a model of vertical pricing in which an original manufacturer sets wholesale prices in two markets that are integrated at the distributor level by parallel imports (PI). The manufacturing firm needs to set these two prices to balance three competing interests: restricting competition in the PI-recipient market, avoiding resource wastes due to actual trade, and reducing the double-markup problem in the PI-source nation. These trade-offs imply the counterintuitive result that both wholesale and retail prices could diverge as a result of declining trading costs, even as the volume of PI increases. Thus, in some circumstances it may be misleading to think of PI as an unambiguous force for price integration.
Subjects: 
Vertical Restraints
Parallel Imports
Market Integration
JEL: 
F12
F15
Document Type: 
Working Paper

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