The Strategic Effects of Parallel Trade`Market stealing and wage cutting`


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.

Keywords: Firm-asymmetry; Labour Union; Parallel import
JEL Classification: F21; F23

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