An Empirical Investigation of Online Gray Markets

A gray market is an unauthorized distribution channel of genuine branded products. Worldwide gray markets compete with authorized distribution channels of branded products and pose significant challenges to brand owners on the management of global supply chains. Therefore, it is important for brand owners to understand sellers’ and buyers’ behavior in gray markets in order to better address this threat. In recent years, online gray markets, a rapidly growing form of gray marketing, have seen significant growth and provide us an unprecedented opportunity to empirically investigate this phenomenon. In this study, we tracked the number of online gray market sellers and transactions on the largest Internet retail website in China for a 34-week period. We focus on two channel control strategies that brand owners can proactively adopt to manage online gray market incidents: controlling product availability and pricing. The results show that less expensive styles are offered by a larger number of gray market sellers and have more transactions. While product availability is positively associated with the number of online gray market sellers, its impact on online gray market transaction quantities is insignificant. This study provides important implications on managing global supply chains that are relevant for researchers and practitioners alike.