Resource title

Why Parallel Trade May Raise Producers' Profits

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Resource description

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.

Resource author

Horst Raff, Nicolas Schmitt

Resource publisher

Resource publish date

Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/21995

Resource license

Adapt according to the presented license agreement and reference the original author.