| Gray market,also known as parallel importation,has become increasingly prevalent in many industries around the world.For example,in Malaysia,gray market mobile phones account for nearly 70% of the mobile phone market.In Germany,more than 300,000 gray market cars were sold in 1996 for a total value of approximately $10 billion.In the United Kingdom,gray products account for almost 20% of the sales in the pharmaceutical industry.In the information technology(IT)industry,gray products represent 5% to 30% of total sales.An industry report estimated that the sale of gray IT product was $40 billion,with an annual loss of $5 billion for U.S.manufacturers.Gray marketing could cause harm to manufacturers' profits and brand image,many other global manufacturers are facing increasing pressures from gray marketing.Such as Mercedes-Benz and BMW,have investigated their luxury cars gray marketing to cope with the issue,since these gray market cars threaten the companies' profits within the world's largest auto market(Reuters 2015).Many other international enterprises such as Nike and Samsung are also suffering from gray marketing and have been taking countermeasures.Gray marketing has attracted much attention from global enterprises and scholars.However,they fail to address the widely-existing parallel importation activities in gray marketing which are difficult to see and track.This paper attempts to fill the gap by investigating gray marketing issue with the aid of radio-frequency identification(RFID)technology,provides a promising way to improve transparency by tracking product flow.Recent developments in IT have enabled manufacturers to monitor the distribution of products to detect gray marketing activities.In particular,RFID technology is an effective tool to improve market channel transparency by tracking items and providing real-time product flow information.When an RFID tag that contains a chip with a unique identification is attached to a product,manufacturers can monitor the real-time location and distribution of the product.RFID has been widely used to track the supply chain distribution of pharmaceutical and food products.A growing number of manufacturers,including Adidas and ZARA,are considering adopting RFID to track products.The global sales of RFID technology reached $28.89 billion in 2017 and are estimated to reach $40.5 billion by 2025.Therefore,RFID technology plays an important role in the traceability of supply chain and becomes a promising method to detect gray marketing activities.For example,in order to improve the traceability of goods from production to sales,the GS1 Hong Kong organization put RFID tags on each product and installed RFID smart kiosks in the airport retail store Travelcare Express operated by Nuance Watson.Consumers can scan RFID tags for any duty-free store merchandise and then track merchandise through key points in the supply chain.Despite the widespread prevalence of gray marketing and the availability of RFID as a potential solution to the gray marketing problem,the literature provides little guidance on whether and when manufacturers should adopt RFID to combat gray marketing.Also unclear is how gray marketers decide whether to import gray products with and without RFID and how RFID affects manufacturer profit,consumer surplus,and social welfare when these marketers strategically respond to the presence of RFID.The objective of this article is to fill these research gaps by introducing RFID technology to the field of gray marketing research.In particular,we address four research question:(1)How does RFID technology affect thirdparty's parallel importation decisions under the case of monopoly?(2)How does RFID technology affect third-party's parallel importation decisions under the case of competition?(3)How does RFID technology affect retailer's parallel importation decisions under the case of monopoly?(4)How does RFID technology affect retailer's parallel importation decisions under the case of competition?Our analysis reveals several notable findings.First,we find that the third-party undertakes gray marketing in the absence of RFID.However,with RFID,the third-party engages in gray marketing only if both the penalty fee and the marginal cost of RFID are low.This finding suggests that RFID reduces the scope of gray marketing by leading to fewer situations in which the third-party undertakes gray marketing.Second,we show that gray marketing reduces the manufacturer's profit with or without RFID.However,the manufacturer's loss is lower with than without RFID.Therefore,RFID alleviates the negative impact of gray marketing on the manufacturer's profit even when it does not eliminate gray marketing.Third,despite these benefits of RFID,our analysis shows that the manufacturer does not always adopt RFID.This decision depends on the marginal cost of RFID,the penalty fee,and the market disparity(i.e.,the demand difference between the two markets).We find that when the market disparity is sufficiently large and the penalty is low,the manufacturer adopts RFID only if its marginal cost is high enough.This finding deviates from conventional wisdom that a higher RFID's marginal cost reduces the manufacturer's willingness to adopt RFID.Moreover,our analysis shows that although RFID benefits firms,it reduces consumer surplus and can also reduce social welfare.In addition,we find that the increased competitive intensity between the two manufacturers decreases the third-party's incentive to engage in gray marketing until the third-party gives up on gray marketing completely.Greater competitive intensity decreases the competitor manufacturer's profits,but can also increase the branded manufacturer's profits.Our results also show that in a competitive supply chain,gray marketing has different implications on the manufacturers,it decreases profits of the branded manufacturer while potentially increasing the competitor manufacturer's profits.These findings provide several implications for managers of manufacturers and public policy makers.For managers,our results suggest that RFID is an effective method to combat gray marketing activities.We provide conditions under which managers should adopt RFID depending on the market disparity,the cost of RFID,and the penalty fee,which provide guidance for manufacturers struggling with gray market management under different market conditions.For public policy makers,our results suggest that they should take the negative effects of RFID on consumer surplus and social welfare into account when regulating gray marketing activities.Supporting manufacturers in their adoption of RFID could lead to unintended consequences for consumers and society as a whole.In summary,our research makes several theoretical and managerial contributions.First,we connect the literature on RFID and gray market to examine the impact of RFID on a manufacturer's endeavor to manage gray market activities.Second,in contrast with prior research that treats the presence of gray marketing as exogenously determined,we examine the manufacturer's RFID adoption by taking the third-party(or retailer)marketer's endogenous gray marketing decisions into account.Third,we examine the impact of RFID on consumer surplus and social welfare,which helps guide public policy makers in regulating gray marketing activities. |
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