Parallel imports and repair services

This study explores the welfare effects of parallel imports when the producer may refuse to provide repair services for parallel imported units, which reduces the degree of price convergence between countries. If the probability of the product's breakdown is endoge-nously determined by the producer, permitting parallel imports could increase the probability, because a higher probability leads to a larger price gap. As a result, it is possible that prices increase and welfare deteriorates in both countries. This negative welfare effect is more likely to emerge as the liberalization of trade in goods proceeds. The prohibition of service discrimination recovers the positive welfare effect. (C) 2020 Elsevier B.V. All rights reserved.