Grey market
From Wikipedia, the free encyclopedia
The grey market (or gray market) refers to the flow of new goods through distribution channels other than those authorized or intended by the manufacturer or producer. Used or pre-owned goods are just that: used. Only new products fall under the legal, accepted definition of grey market.
Unlike those on the black market, grey market goods are not illegal. Instead, they are being sold outside of normal distribution channels by companies which may have no relationship with the producer of the goods. Frequently this form of parallel import occurs when the price of an item is significantly higher in one country than another; this situation commonly occurs with cigarettes and electronic equipment such as cameras. Entrepreneurs will buy the product where it is available cheaply, often at retail but sometimes at wholesale, import it legally to the target market and sell it at a price which provides a profit but which is below the normal market price there.
The existence of the grey market is an example of the economic practice called arbitrage.
Importing certain legally restricted items such as prescription drugs or firearms would be categorized as black market, as would smuggling the goods into the target country to avoid import duties. A related concept is bootlegging, the smuggling or transport of highly regulated goods, especially alcoholic beverages. The term "bootlegging" is also often applied to the production or distribution of counterfeit or pirated goods.
Because of the nature of grey market economics, it is generally difficult or even impossible to track and verify the precise numbers of grey market sales.
On securities markets, grey market has a different meaning. It refers to the buying and selling of securities to be issued in the future and, therefore not yet circulating. This typically occurs some days before an auction of government bonds or bills and that trading is subject to the effective issue of those securities. Sometimes this is taken as a forecast of the prices that markets expect for future issues.
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[edit] Warranties and grey-market goods
Typically the manufacturer will refuse to honor the warranty of an item purchased from grey market sources, on the grounds that the higher price on the non-grey market reflects a higher level of service. This is particularly evident in electronics goods. Manufacturers may give the same model different model numbers in different countries even though the functions of the particular machine are identical. When a manufacturer identifies a particular product as not destined for that particular country the purchaser can then only seek warranty service from the manufacturer's subsidiary in the intended country of import, not the diverted third country where the grey goods are ultimately sold by the distributor or retailer. As there is no privity of contract between the manufacturer and consumer neither the implied warranty of fitness nor the implied warranty of merchantability apply to grey market goods.
Of course, if the manufacturer sells to retailers, there's no privity of contract between the manufacturer and the purchasor either, but the warranty applies nonetheless. Warranty law is not crystal clear, and is highly dependent on the local law.
[edit] Other responses to the grey market
The parties most concerned with the grey market of a good are usually the authorized agents or importers, or the retailers, of the good in the target market. Often this is the national subsidiary of the manufacturer, or a related company, which is the local licensee of the manufacturer's trademarks; rigorous prosecution of trademark laws to restrict advertisements for the product is thus a common tactic used to discourage the grey market, along with refusal to honour warranties and refusal to deal with distributors and retailers (and with commercial products, customers) that trade in grey-market goods. Local laws (or customer demand) concerning distribution and packaging (for example, the language on labels, units of measurement, and nutritional disclosure of foodstuffs) can be brought into play, as can national standards certifications for certain goods.
The development of DVD region codes, and equivalent regional lockout techniques in other media, are examples of technological features designed to limit the flow of goods between national markets, effectively fighting the grey market that would otherwise develop in that product. This enables movie studios and other content creators to charge more for the same product in one market than in another.
Consumer advocacy groups argue that this discrimination against consumers - the charging of higher prices on the same object simply because of where they happen to live - is unjust, and anti-competitive. Further, since it requires Governments to legislate to prevent their citizens from purchasing goods at cheaper prices from other markets, and since this is clearly not in their citizens' interests, many governments in democratic countries have chosen not to protect anti-competitive technologies such as DVD region-coding.
International efforts to promote free trade, including reduced tariffs and harmonized national standards, facilitate the grey market where manufacturers attempt to preserve highly disparate pricing.
When grey market products are advertised on Google, eBay or other legitimate web sites, it is possible to petition for removal of any advertisements that violate trademark or copyright laws. This can be done directly, without the involvement of legal professionals. eBay, for example, will remove listings of such products even in countries where their purchase and use is not against the law.
[edit] Grey market by industry
[edit] Wine
The grey market in wine flourishes, particularly in the case of champagne. Many large champagne producers do their own importing, and desire to maintain independent price points in different markets. Thus a bottle of Champagne might cost US$35 in the United States while the same bottle might be only 20 Euros in France, for marketing purposes. It is often profitable to buy the wine in Europe, typically from an authorized distributor, and resell it in the U.S. In the case of enormous pricing disparity, it is not uncommon to find a grey marketed wine selling for less at retail than the wholesale price of the authorized distributor. In the case of a large availability disparity between the U.S. and Europe, the grey market price may be the same or higher than the authorized price.
Typically the importer of a wine is the one who worries the most about grey market sources. The winemaker may or may not care what happens to the wine after it is sold, although he or she might complain to appease an importer.
[edit] Automobiles
Automobile manufacturers segment world markets by territory and price, thus creating a demand for grey import vehicles.
[edit] Pianos
The term "grey market piano" refers to a typically Asian (usually Japanese) used piano that, for reasons of culture, are highly undesirable in those regions. Therefore, enterprising brokers are taking these pianos to other countries and selling them. Piano manufacturers' distributors for their market (USA, Australia, Canada, etc.) actively discourage the purchase of these pianos, claiming that they are inferior due to having been moved to such a far-away region (Yamaha Corporation of America cites climate specificity in this regard). However, because the term grey market can only be correctly applied to the flow of new goods outside their authorized channel of distribution (see the definition of grey market above) the use of this term in reference to ANY used or pre-owned piano (or any other product, for that matter) is not only incorrect, but is also misleading.
The real reason that authorized distributors for pianos in a given marketplace are using this misnomer is plainly as a 'scare tactic' to steer potential buyers away from purchasing good "used" instruments. It is clearly obvious that they are losing sales of new pianos to these high quality, 'low mileage' used instruments that are making their way to the authorized distributors' marketplace. Ironically, the manufacturers of the new instruments are losing market-share due to the high quality of used (not grey market) pianos that they themselves manufactured just a few years earlier.
[edit] Photographic equipment
Although generally regarded as legal in most countries, parallel imports from foreign countries make photographic equipment, which is often expensive, attractive to photography-savvy users. The grey market in photographic equipment is relatively thriving in highly developed and taxed states like Singapore, with dealers importing directly from lower taxed states and thereafter, selling at a lower range of pricing, creating a definitive competition against imports by a local authorised distributor.
Grey sets, as they are colloquially referred by enthusiasts, are often comparable to authorised imports; lenses or flash units of parallel imports often only differ by the warranty provided, and since the grey sets were manufactured for another state, photographic equipment manufacturers often offer local warranty, instead of international warranty, which will render grey sets eligible for warranty claims with the manufacturer in all corners of the world.
However, due to the nature of local warranty, importers of grey sets usually cover up the flaw in warranty with their own warranty schemes. These are often warranties with reduced benefits or lasting a shorter period of time. Professional lenses like the Canon EF L series are requirements for one to be admitted into the Canon Professional Service, and grey sets are usually disqualified.
Grey sets do not differ particularly from an authorised import; they will look and function identically, apart from the fact that the manufacturer's warranties have been voided.
[edit] Broadcasting
In television and radio broadcasting, grey markets primarily exist in relation to satellite radio and satellite television delivery.
The most common form this takes is companies reselling the equipment and services of a provider who is not licensed to operate in the market. For instance, a Canadian consumer who wants access to American television and radio services that are not available in Canada may approach a grey market reseller of Dish Network or DirecTV; conversely, there is also a grey market in the United States for Canadian satellite services such as Bell ExpressVu or StarChoice.
In Europe, satellite TV services are also encrypted for rights reasons, as they are only entitled to broadcast films, sporting events and US entertainment programming in a certain country or countries, hence only residents of the UK and Ireland may subscribe to Sky Digital. However, in other European countries with large British expatriate populations, such as Spain, Sky is widely available. Although Sky does not condone the use of its viewing cards outside the UK or Ireland, and has the technology to render them invalid, many people continue to use them.
Illegitimate importing of "free-to-view" Sky cards from the UK to Ireland is often done so that Irish Sky customers can receive Channel 4 and Five - some of the many channels not generally available via Sky in the Republic due to rights issues. Similarly, Irish Sky viewing cards, which allow viewing of Irish terrestrial channels, are imported into the UK. However, Northern Ireland residents subscribing to Sky can now watch RTÉ One and Two and TG4, although not TV3, which carries many of the same programmes as ITV.
In the UK, some pubs have obtained viewing cards to receive satellite TV from Norway, which broadcasts live English football matches only available on pay-per-view on Sky, although they have faced legal action from rights holders and broadcasters.
A reseller may also offer the licensed product at lower prices using pirate decryption of scrambled signals, although unlike grey market cards used outside a particular country, this may result in civil or criminal prosecution (if against local laws).
