Title

The Strategic Effects of Parallel Trade～Market stealing and wage cutting～

Abstract

Why do producers often accept parallel trade in some markets such as automobiles, clothing, toys and consumer electronics? This paper identifies two new factors, viz., market stealing and union-wage cutting, which may make parallel trading beneficial to a manufacturer. Specifically, (i) under perfectly competitive labour markets in both the home and foreign countries, parallel trade may help a manufacturer to steal market shares from competitors, if it is more cost efficient or sells in more markets than competitors; and (ii) in a unionized labour market, parallel trade may help by lowering the unionized wage. These benefits of parallel trade disappear when such factors are removed.

Arijit MUKHERJEE
University of Nottingham and The Leverhulme Centre for Research in Globalisation and Economic Policy, UK

Laixun ZHAO
Research Institute for Economics and Business Administration
Kobe University
Rokkodai-cho, Nada-ku, Kobe
657-8501 Japan
Phone: (81) 78 803 7036
Fax: (81) 78 803 7059