Parallel imports of status goods: A strategic analysis of aesthetic design

Abstract

Parallel imports of gray products across markets are a worldwide concern for manufacturers. Extant research has focused on parallel imports of regular goods that do not provide status value. In this paper, we investigate parallel imports of conspicuously consumed status goods. We consider a manufacturer that directly sells a status product to consumers in two markets that value the product differently and a gray marketer that can import the product across markets. Our analysis shows that, though parallel imports decrease a manufacturer's profit from selling regular goods, it can increase its profit from selling status goods. Furthermore, the manufacturer decides whether to use the same or different aesthetic design for products across markets. With the same design, the gray and manufacturer-authorized products look identical, while different designs make them distinguishable, which affects their status value. We find that parallel imports benefit the manufacturer in a broader range of situations under the different-design strategy, whereas the same-design strategy increases the gray marketer's profit. When the two markets are sufficiently similar, the manufacturer uses the same design to induce parallel imports. When the two markets are sufficiently different, the manufacturer uses different designs to either deter parallel imports or improve its profit while competing with the gray marketer.

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