() and Keith E. Maskus
Mattias Ganslandt: University of Colorado, Postal: Department of Economics, Campus Box 256, 80309-0256, Colorado, USA
Keith E. Maskus: University of Colorado, Postal: Department of Economics,Campus Box 256, 80309-0256, Colorado, USA
Abstract: 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.
38 pages, April 13, 2007
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