Shades of gray-the impact of gray markets on authorized distribution channels

Ying Xiao, Udatta Palekar, Yunchuan Liu

Research output: Contribution to journalArticlepeer-review


Gray markets refer to the diversion of unauthorized products from a market or channel with low prices to another market or channel with higher prices. In this paper, we study the effects of gray markets on the profitability of distribution channel members under different channel structures with different parallel importer identities. We show that a manufacturer can benefit from parallel importation by a third party or by an authorized dealer. However, channel structure is critical in determining both who benefits and the mechanism by which this benefit occurs. In addition, we show whether the parallel importer is a third party or a retailer has significant effects on channel members' profits. Although this research is motivated by international marketing practices, the modeling approach and the results apply more generally to cases where a manufacturer sells to different customer segments at different prices.

Original languageEnglish (US)
Pages (from-to)155-178
Number of pages24
JournalQuantitative Marketing and Economics
Issue number2
StatePublished - Jun 2011


  • Channel structure
  • Distribution channel
  • Game theory
  • Gray market
  • Parallel importation
  • Pricing

ASJC Scopus subject areas

  • Economics, Econometrics and Finance (miscellaneous)
  • Marketing


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