Abstract Parallel imports are goods traded outside the control of an original trademark or copyright manufacturer. This paper utilizes three-stage three-country model to investigate the retail country’s optimal trade policy towards parallel imports. The retail country’s optimal trade policy is shown to depend on the pricing scheme employed by the manufacturer. Increasing parallel imports have no impact on the retail country’s welfare but decreases world welfare and the profit of the manufacturer if the manufacturer uses a two-part tariff as its pricing scheme. In contrast, if the manufacturer engages in price discrimination, both the retail country’s welfare and the profit of the manufacturer increase but the impact on world welfare is ambiguous.
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Received: 15 December 2009
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