Wholesale Price Discrimination and Parallel Imports
37 Pages Posted: 9 Mar 2007
Date Written: March 5, 2007
We develop a model of vertical pricing in which an original manufacturer sets wholesale prices in two markets integrated at the distributor level by parallel imports (PI). In this context we show that if competition policy requires uniform wholesale prices across locations it would push retail prices toward convergence as transportation costs fall. However, these retail prices could be higher than those induced without restrictions on prices charged to distributors. Thus, the competition policy may not be optimal for consumer welfare.
Keywords: Vertical Restraints, Parallel Imports, Market Integration, Price Discrimination, Competition Policy
JEL Classification: F15, L14, K21
Suggested Citation: Suggested Citation