Abstract
The persistence of price discrimination across international markets with falling costs of unofficial importing is both paradox and policy concern. E-commerce facilitates a “grey” market in parallel imports, particularly for high-value goods such as electronics. This paper explores the impact of unofficial imports on price using a panel of product markets mediated via an Internet shopbot. It finds the presence of an import model lowers prices across the market. However, unlike the refurbished model it is not simply an inferior substitute. The import price discount increases over the model life cycle, suggesting that model-specific preferences fall as each model ages.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
Notes
For example, the 20 gigabyte version of PS3 had a recommended price of $499 in the US compared to the equivalent of $430 in Japan and almost $640 in the EU. See http://news.bbc.co.uk/1/hi/technology/5369720.stm
The most obvious expression of this has been in the EU’s attempts to end price discrimination in new cars across national markets in Europe: see, for example, http://europa.eu/pol/comp/overview_en.htm.
Ganslandt and Maskus (2007) provide a more complex model in which trading costs and the need to reduce the double marginalization problem in the PI source nation introduce more complex trade-offs under international price discrimination. While PIs still encourage price convergence with greater integration of retail markets their impact on wholesale market integration can produce retail price divergence.
Sony introduced its Play Station 2 into Japan in March 2000 whilst it was not expected to ship to the UK until September. The UK grey market price for import models began a £999 for a product that was expected to retail for £300 when available. The grey price quickly dropped to £699 after the ultra-high demand consumers were satisfied. See: http://www.theregister.co.uk/2000/03/13/sony_playstation_2_prices_hit/.
While numbers of transactions are not recorded, NexTag does publish monthly data on final clicks through to the seller which provide an indication of actively traded models.
Three weekly observations were discarded because of possible contamination from closely related models.
At least none were advertised as such on NexTag.com. Odd examples were found on individual sellers’ websites.
Digital cameras (HTS item 8525.80.40) are in any event free-rated in the Harmonized Tariff Schedule. Information supplied via personal communication from the US International Trade Commission, June 2008.
The sale of import models has given rise to adverse comment and it is noticeable that some of the leading retailers using NexTag, including Amazon.com, appear to offer refurbished models but not imports.
Ireland (2007) has recently suggested an additional systemic disadvantage for manufacturers if the availability of at least some unofficial imports increases the returns to—and hence the extent of—search activity. He cites the European Court’s support for the right of Levi Strauss to restrict supplies of its jeans to Tesco, the largest UK retailer, to counter the latter’s unofficial imports from the USA. Ireland suggests that Tesco’s stocking low-price jeans would encourage price search to the disadvantage of other retailers and ultimately of the manufacturer itself.
References
Barron, J.M., Taylor, B.A., and Umbeck, J.R., “Number of sellers, average prices and price dispersion,” International Journal of Industrial Organization, vol. 22, no. 8–9pp. 1041–1067, 2004 doi:10.1016/j.ijindorg.2004.05.001.
Baye, M.R., Morgan, J., and Scholten, P., “Price dispersion in the small and in the large: evidence from an Internet price comparison site,” Journal of Industrial Economics, (2002), vol. 52, pp. 463–496, 2004a.
Baye, M.R., Morgan, J., and Scholten, P., “Temporal price dispersion: evidence from an on-line consumer electronics market,” Journal of Interactive Marketing, vol. 18, pp. 101–115, 2004b doi:10.1002/dir.20016.
Baye, M.R., Gatti, J.R.J., Morgan J., Kattuman P., and Morgan J. Estimating firm-level demand at a price comparison site: accounting for shoppers and number of competitors. Mimeo, 2004c.
Clay, K. and Tay, J., Cross-country price differentials in the on-line textbook market. mimeo)Pittsburgh, PA (Heinz School of Public Policy and Management, Carnegie Mellon University), p. 15213, 2001.
Clay, K., Krishnan, R., Wolff, E., and Fernandes, D., “Retail strategies on the web: price and non-price competition in the online book industry,” Journal of Industrial Economics, vol. 50, pp. 351–367, 2002.
Gandal, N., “Hedonic price indexes for spreadsheets and an empirical test for network externalities,” Rand Journal of Economics, vol. 25, no. 1pp. 160–170, 1994 doi:10.2307/2555859.
Ganslandt, M. and Maskus, K.E., “The price impact of parallel imports in pharmaceuticals: evidence from the European Union,” Journal of Health Economics, vol. 23, pp. 1035–1057, 2004 doi:10.1016/j.jhealeco.2004.03.005.
Ganslandt, M. and Maskus, K.E., “Vertical distribution, parallel trade and price divergence in integrated markets,” European Economic Review, vol. 51, pp. 943–970, 2007 doi:10.1016/j.euroecorev.2006.06.004.
Geroski, P.A., The Evolution of Markets. Oxford (Oxford University Press), 2003.
Ghose, A., Smith, M.D., and Telang, R., “Internet exchanges for used books: An empirical analysis of product cannibalization and welfare impact,” Information Systems Research, vol. 17, pp. 3–19, 2006 doi:10.1287/isre.1050.0072.
Haynes, M. and Thompson, S., “Price, price dispersion and number of sellers at a low entry cost shopbot,” International Journal of Industrial Organization, vol. 26, pp. 459–472, 2008 doi:10.1016/j.ijindorg.2007.02.003.
Ireland, N.J., “Posting multiple prices to reduce the effectiveness of consumer price search,” Journal of Industrial Economics, vol. 55, pp. 235–264, 2007 doi:10.1111/j.1467-6451.2007.00310.x.
Li, C. and Maskus, K., “Parallel imports and cost reducing research and development,” Journal of International Economics, vol. 68, pp. 443–455, 2006 doi:10.1016/j.jinteco.2005.07.006.
Maskus, K. and Chen, Y. (2000) Vertical price controls and parallel imports. World Bank Policy Research Working Paper 2461.
Raff, H. and Schmitt, N., “Why parallel trade may raise producers’ profits,” Journal of International Economics, vol. 71, pp. 433–447, 2007 doi:10.1016/j.jinteco.2006.08.001.
Richards, K., “The effects of Southwestern Airlines on US airline markets,” Research in Transportation Economics, vol. 4, pp. 33–47, 1996.
Scholten, P. and Smith, S.A. Price dispersion then and now: evidence from retail and e-tail markets. Mimeo, 2002.
Smith, M.D., and Brynjolfsson, E. Consumer decision-making at an Internet shopbot. Mimeo, Sloan School of Management, MIT, 2001.
Valletti, T.M., “Differential pricing, parallel trade and the incentive to invest,” Journal of International Economics, vol. 70, pp. 314–324, 2006 doi:10.1016/j.jinteco.2005.07.010.
Valletti, T.M. and Szymanski, S., “Parallel trade, international exhaustion and intellectual property rights: a welfare analysis,” Journal of Industrial Economics, vol. 54, no. 4pp. 499–526, 2006 doi:10.1111/j.1467-6451.2006.00298.x.
Waldfogel, J. and Chen, L., “Does information undermine brand? Information intermediary use and preference for branded web retailers,” Journal of Industrial Economics, vol. 54, no. 4pp. 425–450, 2006 doi:10.1111/j.1467-6451.2006.00295.x.
Acknowledgements
The author is indebted to the editor and two referees of this Journal and participants at the 2007 Industrial Organization Society Conference at Charleston, South Carolina, especially Alberto Salvo, for helpful comments on earlier versions of this paper and to Doug Nelson and the US International Trade Commission for assistance on trade issues.
Author information
Authors and Affiliations
Corresponding author
Appendix
Appendix
Rights and permissions
About this article
Cite this article
Thompson, S. Grey Power: An Empirical Investigation of the Impact of Parallel Imports on Market Prices. J Ind Compet Trade 9, 219–232 (2009). https://doi.org/10.1007/s10842-008-0034-1
Received:
Revised:
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s10842-008-0034-1