Parallel Imports, Network Externalities, Transport Cost and Destination-Commodity Tax

This paper investigates how network externalities affect parallel imports and profits. In a three-country model, a multinational manufacturer produces locally and sells through local distributors in two countries. Parallel imports between two countries are permitted by the manufacturer. The governments impose the destination-commodity tax. We show that consumption network externalities and transport costs jointly determine the volume of parallel imports. Furthermore, compared to limits on parallel trade, the manufacturer gains more profits without any limits to its distributors, with or without the asymmetric network externalities. Our work provides a new driving force for parallel imports between two countries