1. Gray-market trade with product information service in global supply chains
- Author
-
Kenji Matsui
- Subjects
Service (business) ,Economics and Econometrics ,Service product management ,Supply chain ,Customer segmentation ,Grey market ,Management Science and Operations Research ,General Business, Management and Accounting ,Industrial and Manufacturing Engineering ,Global supply chain ,Commerce ,Market segmentation ,Product information service ,Economics ,Gray market ,Economic model ,Product (category theory) ,Parallel trade ,Industrial organization ,Expected utility hypothesis - Abstract
This paper investigates the economic effects of a product information service when potential consumers, who are segmented by their taste, exist in gray markets. Specifically, we construct an economic model that considers a multinational firm (MNF) who expands business to a country and chooses whether to provide information service regarding product characteristics. If receiving the information, consumers in a specific segment, whose taste suits the characteristics, have positive utility from consuming the product, while those in other segments have no utility. By contrast, consumers in all segments have positive expected utility before consuming the product without information. With these settings, we demonstrate that there arises the equilibrium that the MNF provides no information service when gray-market trade, i.e., parallel trade, is allowed in the country, leading to lower consumer welfare than when it is prohibited. A primary finding in the equilibrium is that such a situation arises especially when potential consumers are less segmented. In this situation, the regulator in the country should ban the parallel imports so as to enhance consumer welfare. The result is counterintuitive and notable, because one might intuitively infer that gray-market trade is less desirable when customers are more minutely segmented and the product information service is thus more specific and necessary. (C) 2013 Elsevier B.V. All rights reserved.
- Published
- 2014