Abstract
We formulate a two-stage game to examine the parallel import (PI) policies for large developing countries. Two countries, a developed (N) and a developing (S), make their PI policies in the first stage. A high-quality variety is produced in N by a monopoly firm, and a low-quality variety is produced in S by a lot of firms under perfect competition. The monopoly firm chooses the optimal pricing strategy in the second stage. We clarify how market outcomes and PI policies depend on the quality difference, the income differential, country sizes, and the weights of consumer surplus and firm profits in measuring the national welfare. Our results provide a theoretical base for developing countries to make their PI policies according to their market sizes. Discriminatory pricing is obtained when governments care about consumer surplus, while uniform pricing is obtained when governments care about firm profit.
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Notes
As a result, the issue of aftermarket services is an important topic in this field. See Ishikawa et al. (2016).
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Acknowledgements
The authors owe a lot to two anonymous referees for very insightful and constructive suggestions. We are also grateful to Ryo Itoh, Naoto Jinji, Yasushi Kawabata, Tatsuhito Kono, Kieth E. Maskus, Mehmet S. Tosun, and Yang Zhang for helpful comments. This research was partially funded by JSPS KAKENHI Grant Number JP17H02514 of Japan and National Natural Science Foundation Grant Number 71733001 of China.
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