Parallel imports in large developing countries
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Parallel imports in large developing countries Dao‑Zhi Zeng1 · Biyue Zhang1 Received: 6 June 2019 / Accepted: 5 March 2020 © Springer-Verlag GmbH Germany, part of Springer Nature 2020
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. JEL Classification F1 · L1
1 Introduction This paper analyzes parallel import (PI) policies between developing and developed countries. We clarify how the PI policy in a large developing country is important in forming the market outcome of price strategies. Parallel imports, also called gray-market imports, refer to the phenomenon that a trademark-protected good is imported into another country without the permission of the patent, copyright, or trademark owner.1 In the era of globalization, PIs help consumers acquire cheaper goods and they are popular in pharmaceutical markets 1 As a result, the issue of aftermarket services is an important topic in this field. See Ishikawa et al. (2016).
* Dao‑Zhi Zeng [email protected] 1
Graduate School of Information Sciences, Tohoku University, Aoba 6‑3‑09, Sendai, Miyagi 980‑8579, Japan
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(Scherer and Watal 2002; Brekke et al. 2015). However, its legality is controversial. As pointed out by Maskus (2000), the international exhaustion principle makes PIs legal if Rights are considered to end upon first sale anywhere. Meanwhile, a regime of national exhaustion, the idea that trademark protection is subject to territoriality, gives the right to prevent PIs. Firms’ price strategies depend on the PI policies across markets. A firm cannot set a higher price in a country if PI is permitted there. In the real world, PI policies vary across countries, even developed countries. For example, Japan, Australia, and New Zealand are all open to PIs. In particular, Japan allows PIs unless the goods are explicitly barred from parallel trade by contract provisions. Conversely, PIs in the USA are prohibited in principle. In the EU, parallel imports are generally permissible, while parallel imports from outside the EU are strictly restricted. The PI policies in developing countries are scarcely discussed. Maskus (2000, p. 1273) simply conclud
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