Does Parallel Trade Freedom Harm Consumers in Small Markets?

Croatian Economic Survey, No. 11, pp. 11-41, 2008

31 Pages Posted: 14 Jul 2011

See all articles by Frank Mueller-Langer

Frank Mueller-Langer

University of the Bundeswehr Munich; Max Planck Institute for Innovation and Competition; European Commission, Joint Research Center

Date Written: September 14, 2008

Abstract

Countries can freely decide whether to permit or ban parallel trade. Article 6 of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement) – being the only provision in the various international agreements on intellectual property rights that deals with the treatment of parallel trade – preserves the territorial privilege for regulating parallel trade. In a parallel trade model with two heterogeneous countries in terms of market size, we address the question as to whether parallel trade freedom is beneficial or detrimental from a consumer’s perspective. In particular, the model suggests that parallel trade freedom is detrimental to consumers in the country with the smaller market as less of a certain product is sold at a higher price. However, parallel trade freedom is likely to be beneficial to consumers in the country with the larger market. We also find that the smaller country, in terms of market size, will remain unserved under parallel trade freedom if the second country is sufficiently attractive in terms of market size.

Keywords: parallel trade, economic analysis of intellectual property rights

JEL Classification: K33, O34

Suggested Citation

Mueller-Langer, Frank, Does Parallel Trade Freedom Harm Consumers in Small Markets? (September 14, 2008). Croatian Economic Survey, No. 11, pp. 11-41, 2008, Available at SSRN: https://ssrn.com/abstract=1885539

Frank Mueller-Langer (Contact Author)

University of the Bundeswehr Munich ( email )

Munich
Germany

Max Planck Institute for Innovation and Competition ( email )

Munich
Germany

European Commission, Joint Research Center

Seville
Spain

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