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PARALLEL IMPORTS, MARKET SIZE AND INVESTMENT INCENTIVE

This paper proposes a vertical control model that features two-part tariff pricing, leader-fringe-follower competition, and investment to characterize the conditions under which parallel imports will (or will not) occur when such activities are legally permitted. In addition, we analyze the effects of parallel imports on the incentive of an authorized distributor to invest in market development. We find that parallel imports cannot arise if the target and the source market either differ too greatly or are too similar in size. Two results are worth emphasizing. First, parallel imports can arise even if the IP owner has the ability to deter parallel imports. Second, the presence of parallel imports and even the threat posed by parallel imports can reduce the domestic distributor's market development investment.
Year of publication:
2009
Authors: PALANGKARAYA, ALFONS ; YONG, JONGSAY
Published in:
The Singapore Economic Review (SER). - World Scientific Publishing Co. Pte. Ltd., ISSN 1793-6837. - Vol. 54.2009, 02, p. 167-181
Publisher: World Scientific Publishing Co. Pte. Ltd.
Subject: Parallel imports | vertical control | Intellectual Property (IP) law
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