Parallel trade, price regulation, and investment incentives
نویسندگان
چکیده
We study the case where parallel trade (PT) stems from government price controls in a foreign country. We remove the presumption that PT blunts dynamic efficiency if the government has partial commitment ability. We model the R&D firm’s option to serve the foreign country, and find that PT may improve quality, depending on preferences for quality. Improving quality may be a sufficient condition for PT to raise global welfare ex ante. Under PT, quality may be higher with than without price controls. We discuss the role of bargaining power in price negotiations. JEL Classification: L51, F1, O34
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