When gray markets have silver linings: All-unit discounts, gray Markets, and channel management

摘要

Domestic gray markets account for a significant portion of the total market in goods ranging from Pharmaceuticals to consumer electronics. Authorized resellers sell in gray markets in response to incentives offered by suppliers when suppliers are indifferent towards such sales. Suppliers encourage gray markets by pricing strategies. The paper studies gray market operations induced by all-unit quantity discounts that ensure the same discount to every unit once a specified purchase quantity is achieved. This encourages resellers to order a higher quantity and divert the excess to the gray market. The study examines how the inventory costs of resellers and the scale economies of the supplier interact with pricing in situations where the reseller can divert goods. The study also investigates how the gray market impacts profits of the reseller and sales through authorized channels. The gray market competes with authorized resellers and may encourage counterfeit goods. The excess inventory and all-unit quantity discounts are the prime drivers of gray market sales. (27 refs.)