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>However, this is the basic intuition behind these types of laws that you need to understand, otherwise I fear none of this will make any sense to you. This is

>However, this is the basic intuition behind these types of laws that you need to understand, otherwise I fear none of this will make any sense to you. This is also exactly why those types of laws are wrong. They're done by politicians and not by economists, and politicians are relegated to using the same faulty intuitive reasoning that you did. In aggregate, prices tend towards a supply-demand equilibrium that maximizes profits globally. This is constructed through the price mechanism. If a company sells product X in country A for $300 and country B for $100, and someone goes to country B and buys some X and brings it back to country A, assuming zero transportation costs, the price in country B will increase and the price in country A will decrease. This will continue until the prices equalize in both countries. Now, demand in country B will decrease and in country A it will increase. The key here is the proportional change. Assuming supply and demand curves that are perfectly linear, the company will now sell 3/2 as much volume at $200 in country A than it did at $300 if volumes sold are the same. It'll sell half as much in country B due to the price doubling. If both markets sold the same volume, the net effect is that we now have 1.5x200+.5x00=400 instead of 1x100+1x300=400. That is, the total revenue doesn't change and the company makes the same profit. The volume also stays constant. This still isn't the total reality, but it's a much more apt description than your calculation. Importantly, parallel importation promotes price efficiency this way and increases competition. If governments want the poor to have access to a good, they can subsidize poor people purchasing it for personal use. They shouldn't ban parallel importation. A key analogy here is that by your logic, we should also make it illegal to do parallel importation between the many states of the USA. In reality, all you're doing is restricting price efficiency. What I've described above are "the basic economic laws" that override your "basic intuition". There are more subtleties, of course, but in aggregate and with market efficiency, reality tends toward the case described.

czr80 14y ago
You're not wrong in the confines of the model you're operating in (perfect competition), but be careful about assuming that that model is a complete description of the world. Especially in this case, reality is complicated. So complicated, in fact, that I'm not going to try to address your points at all, but if you are curious to follow up on it I can recommend the following article: http://jurisonline.in/2008/09/parallel-imports/ http://jurisonline.in/2008/09/parallel-imports/. Scroll down to the section labelled (Economic causes of Parallel Imports) and read from there.
- Variance 14y ago
  >What I've described above are "the basic economic laws" that override your "basic intuition". There are more subtleties, of course, but in aggregate and with market efficiency, reality tends toward the case described. It's a little silly that you would say that when you were just doing back-of-the-hand calculations to justify banning parallel imports, don't you think? I've already covered your response in my previous comment. I'm not "curious" about parallel imports either, they're a well-defined economic case that has been the subject of plenty of research. There's a great discourse on the subject, since some of the primary variables in analyses of parallel import policy are price elasticity and regulatory effects. The modeling of simple example goods with perfect elasticity, like I was doing there, is not really a question. You only get more interesting results when you take goods that are exotic for having huge fixed production costs or price inelasticities, or markets that are highly asymmetric in the parallel importation context. Pharmaceuticals make for a great case, one which has really taken off in recent years. The Maskus paper that your article mentioned like a citation but then failed to cite for some reason provides a good jumping-off point. Kanavos et al. [1] then provide some real-world considerations with data from the EU; and Grossman and Lai [2] provide a revised viewpoint that considers regulatory factors in better focus. [1]: http://archives.who.int/prioritymeds/report/append/829Paper.pdf http://archives.who.int/prioritymeds/report/append/829Paper.... [2]:http://www.princeton.edu/~grossman/ParallelImports.pdf http://www.princeton.edu/~grossman/ParallelImports.pdf But I don't want to be getting too deep into a discussion about exotic cases here--those are just interesting instances of them. My primary point is that, like I originally said, the intuitive reasoning that politicians and people use to justify banning parallel imports is just speculation in the face of legitimate economic considerations. There's real economics behind issues of parallel importation that needs to be respected, and I'd like it if people would understand that before arguing in favor of anti-parallel-importation laws.

czr80 14y ago

You're not wrong in the confines of the model you're operating in (perfect competition), but be careful about assuming that that model is a complete description of the world. Especially in this case, reality is complicated. So complicated, in fact, that I'm not going to try to address your points at all, but if you are curious to follow up on it I can recommend the following article: http://jurisonline.in/2008/09/parallel-imports/ http://jurisonline.in/2008/09/parallel-imports/. Scroll down to the section labelled (Economic causes of Parallel Imports) and read from there.

Variance 14y ago
>What I've described above are "the basic economic laws" that override your "basic intuition". There are more subtleties, of course, but in aggregate and with market efficiency, reality tends toward the case described. It's a little silly that you would say that when you were just doing back-of-the-hand calculations to justify banning parallel imports, don't you think? I've already covered your response in my previous comment. I'm not "curious" about parallel imports either, they're a well-defined economic case that has been the subject of plenty of research. There's a great discourse on the subject, since some of the primary variables in analyses of parallel import policy are price elasticity and regulatory effects. The modeling of simple example goods with perfect elasticity, like I was doing there, is not really a question. You only get more interesting results when you take goods that are exotic for having huge fixed production costs or price inelasticities, or markets that are highly asymmetric in the parallel importation context. Pharmaceuticals make for a great case, one which has really taken off in recent years. The Maskus paper that your article mentioned like a citation but then failed to cite for some reason provides a good jumping-off point. Kanavos et al. [1] then provide some real-world considerations with data from the EU; and Grossman and Lai [2] provide a revised viewpoint that considers regulatory factors in better focus. [1]: http://archives.who.int/prioritymeds/report/append/829Paper.pdf http://archives.who.int/prioritymeds/report/append/829Paper.... [2]:http://www.princeton.edu/~grossman/ParallelImports.pdf http://www.princeton.edu/~grossman/ParallelImports.pdf But I don't want to be getting too deep into a discussion about exotic cases here--those are just interesting instances of them. My primary point is that, like I originally said, the intuitive reasoning that politicians and people use to justify banning parallel imports is just speculation in the face of legitimate economic considerations. There's real economics behind issues of parallel importation that needs to be respected, and I'd like it if people would understand that before arguing in favor of anti-parallel-importation laws.