Parallel imports are good for welfare, not bad for welfare Essay

Parallel imports are good for welfare, not bad for welfare - Essay Example In the United States annual retail sales of the unauthorized imports, or "gray market" goods, may have approached $10 billion during the 1980s. Governments around the world have struggled with the question whether the exclusive distributor ought to be able to block such parallel importation. (Takamatsu 57) The unauthorized importers have maintained that because their activity encourages price competition and benefits the consumer, it should be freely permitted. Allowing foreign manufacturers to establish exclusive distributorships and prevent all intrabrand competition, they point out, would be inconsistent with the principles of free enterprise in a market economy and would be inconsistent with the interests of consumers. As one gray market retailer pointed out: As a result of this importation of merchandise at lower prices, we sell at lower prices. The price differential to the consumer is between 10 and 40 percent with an average of probably 20 to 25 percent. This savings to the consumer also occurs on merchandise purchased from foreign brand distributors because most of the subsidiaries of foreign manufacturers have been forced to lower their U.S. ... The authorized distributors respond that irrespective of any benefit to the consumer, parallel importation unfairly injures enterprises which have made significant expenditures in generating goodwill, only to have the resultant returns siphoned off to others. The U.S. distributors may, for example, have spent large sums of money preparing to introduce a new product to the North American market, and gone to great effort and expense to build up consumer awareness, as well as to develop effective distribution channels. In 1983 the grey market hit us with full force as up to 30% of our sales were lost to the diverters. We experienced two layoffs and our advertising and promotion efforts were severely curtailed. . . . The impact of the grey market greatly impacted our bottom line as we suffered a catastrophic loss. And even established international brand names require careful attention to local regulatory standards, consumer tastes, income levels, language, and a host of other factors. Typically it is the U.S. distributor's responsibility to monitor and respond to these variables, to preserve and improve a product's image in the public mind. Parallel importers' "free ride" on the goodwill generated by such activities should be prohibited, the distributors maintain. But the parallel importers argue that the goodwill on which they trade ordinarily belongs to the manufacturer, not the distributor. The typical consumer decides to buy a "Nikon" camera, for example, not because of the reputation of the Nikon distributor, but because the customer recognizes the manufacturer's name as signifying a particular standard of quality. And gray market sales, the importers urge, cannot constitute free riding on this goodwill of the foreign manufacturer, since the products