Parallel trade (PT) is a practice related to arbitrage operations in international trade. We provide a rationale for PT as an opportunistic behaviour by an international wholesaler who is privately informed about market demands in two countries where a multinational firm operates. This alternative theory of PT contributes to an explanation of why PT has gained considerable importance in various industries, and why it has not yet resulted in price convergence across relevant countries. Indeed, we find that asymmetric information enlarges the scope for PT, relative to complete information, and possibly increases cross-country differences in prices. The European Commission supports PT as a means to achieve the integration of national markets, to the benefit of all citizens. However, under asymmetric information, consumers benefit from PT only with a high volume of parallel imports (e.g., when arbitrage costs are low); otherwise competition among wholesalers can be an effective substitute for PT. Further‐ more, an important implication of PT is the transfer of profits from the manufacturer to the wholesaler. Therefore, in R&D-intensive industries, such as pharmaceuticals, policy makers should anticipate the likely consequences of PT under asymmetric information on the long-run incentives to innovate.

Vertical control and parallel trade under asymmetric information / Avenali, Alessandro; Leporelli, Claudio; Matteucci, Giorgio; Reverberi, Pierfrancesco. - In: INTERNATIONAL JOURNAL OF ENGINEERING BUSINESS MANAGEMENT. - ISSN 1847-9790. - 7:1(2015), pp. 1-11. [10.5772/60529]

Vertical control and parallel trade under asymmetric information

AVENALI, Alessandro;LEPORELLI, CLAUDIO;MATTEUCCI, Giorgio
;
REVERBERI, Pierfrancesco
2015

Abstract

Parallel trade (PT) is a practice related to arbitrage operations in international trade. We provide a rationale for PT as an opportunistic behaviour by an international wholesaler who is privately informed about market demands in two countries where a multinational firm operates. This alternative theory of PT contributes to an explanation of why PT has gained considerable importance in various industries, and why it has not yet resulted in price convergence across relevant countries. Indeed, we find that asymmetric information enlarges the scope for PT, relative to complete information, and possibly increases cross-country differences in prices. The European Commission supports PT as a means to achieve the integration of national markets, to the benefit of all citizens. However, under asymmetric information, consumers benefit from PT only with a high volume of parallel imports (e.g., when arbitrage costs are low); otherwise competition among wholesalers can be an effective substitute for PT. Further‐ more, an important implication of PT is the transfer of profits from the manufacturer to the wholesaler. Therefore, in R&D-intensive industries, such as pharmaceuticals, policy makers should anticipate the likely consequences of PT under asymmetric information on the long-run incentives to innovate.
2015
Asymmetric information; Parallel trade; Vertical control; Organizational Behavior and Human Resource Management; Management Science and Operations Research
01 Pubblicazione su rivista::01a Articolo in rivista
Vertical control and parallel trade under asymmetric information / Avenali, Alessandro; Leporelli, Claudio; Matteucci, Giorgio; Reverberi, Pierfrancesco. - In: INTERNATIONAL JOURNAL OF ENGINEERING BUSINESS MANAGEMENT. - ISSN 1847-9790. - 7:1(2015), pp. 1-11. [10.5772/60529]
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11573/898484
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