Equilibrium parallel import policies and international market structure

This paper derives equilibrium government policies towards parallel imports in a North-South model where the Northern \u85rm produces high quality and the Southern \u85rm produces low quality. Given policies, each \u85rm decides whether or not to serve the other countrys market. If Northern consumers have su ¢ ciently higher preference for high quality, the Northern government forbids parallel imports and international price discrimination ob-tains: when the threat of indirect competition from arbitrage-induced parallel imports is absent, \u85 rms choose to directly compete in both markets. If demand structures are rel-atively similar across countries, the North permits parallel imports and uniform pricing obtains