Why Parallel Trade May Raise Producers' Profits

No 2005-07, Economics Working Papers from Christian-Albrechts-University of Kiel, Department of Economics

Abstract: This paper shows that a manufacturer may benefit from parallel trade. In addition to an intuitive condition about the effect of demand shocks, this occurs when competitive retailers must order inventories before they know the realization of demand and for products whose sale value drops at the end of the demand period. For these types of products, letting retailers trade unsold inventories generally results in larger orders placed with the manufacturer, higher manufacturer profit and higher consumer surplus. The model provides a simple explanation as to why the volume of parallel trade is now very large and accepted by manufacturers for some products such as automobiles, clothes, toys, consumer electronics, musical recordings, cosmetics and perfumes.

Keywords: parallel trade; distribution (search for similar items in EconPapers)
JEL-codes: F12 (search for similar items in EconPapers)
Date: 2005
New Economics Papers: this item is included in nep-int
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Citations: View citations in EconPapers (6)

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Related works:
Journal Article: Why parallel trade may raise producers' profits (2007)
Working Paper: Why Parallel Trade may Raise Producers Profits (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:cauewp:2990

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