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Parallel Imports, Quality Differentiation, and Product Piracy in a North-South Model

We consider the welfare effect of parallel imports under the possibility of piracy, by constructing a model of the monopoly firm selling its product in a developed country and in a developing country. We show that parallel imports does not always make the firm worse off and consumers better off. Sometimes parallel imports benefit both the firm and the consumers, irrespective of the existence of piracy. However, piracy makes parallel imports more preferable to the consumers and less preferable to the firm. We also suggest that a policy regarding piracy can be internationally coordinated with a policy regarding parallel imports.