BRIGHT IDEAS: David Sugden on Gray Markets

Deven Desai

Deven Desai is an associate professor of law and ethics at the Scheller College of Business, Georgia Institute of Technology. He was also the first, and to date, only Academic Research Counsel at Google, Inc., and a Visiting Fellow at Princeton University’s Center for Information Technology Policy. He is a graduate of U.C. Berkeley and the Yale Law School. Professor Desai’s scholarship examines how business interests, new technology, and economic theories shape privacy and intellectual property law and where those arguments explain productivity or where they fail to capture society’s interest in the free flow of information and development. His work has appeared in leading law reviews and journals including the Georgetown Law Journal, Minnesota Law Review, Notre Dame Law Review, Wisconsin Law Review, and U.C. Davis Law Review.

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2 Responses

  1. A.W. says:

    Well, i have long said that the illegal immigration problem is profoundly misunderstood. what it really is, is a black market for labor. And it is the inevitable result of an overregulated market. this grey market stuff is a different head of the same beast.

  2. Mark Seecof says:

    Sugden: “…these businesses had no right to sell genuine goods…”

    Come again? No right to sell genuine goods?

    It’s one thing to fight the sale of counterfeit goods. We’re all in favor of that– the whole point of trademarks is to identify the origins of goods and counterfeiting trademarks is properly reviled and combated.

    But, it is an abuse of US process to try to stop the sale of genuine goods. US courts have no business acting as free* enforcers for manufacturers’ various price-discrimination schemes. (Does Sugden also think consumers have “no right” to dispose of no-longer-wanted (genuine) goods at garage sales?)

    Sugden: “…information technology manufacturers alone have estimated losses of $40 billion in annual sales…”

    I’ll omit the usual criticism of how bogus those “estimates” typically are. That doesn’t matter, because sales of genuine goods by re-importers do not represent “losses” to manufacturers at all. Remember the First Sale Doctrine? When a manufacturer sells a good (and, let us note, cheerfully books the revenue from that sale!) he’s done with it. The fact that a subsequent purchaser resells that good somewhere down the road for more (or less) does not give the manufacturer a loss (or gain). Only in the intentionally-misleading grammar of propaganda does a manufacturer take a “loss” when he sells a good to some foreigner who incidentally resells it to an American for more money. If the manufacturer had wished to do so, the manufacturer could have sold the good in question to the American for the same price as the foreigner did. (Or, for completeness, the manufacturer could have sold the good to the foreigner for the same price as he would have sold it to an American.)

    But, Sugden writes, the “gray market vexes brand owners…”

    Ooooh! Brand owners are vexed! What Sugden means is, brand owners seeking to maximize profits through price discrimination are annoyed when arbitrageurs undercut their schemes by moving goods from low-price zones to higher-price zones. Since such arbitrage is an unalloyed benefit for consumers and a perfectly ethical business practice, it is also quite lawful.

    When Sugden labels such arbitrage “brand abuse” and suggests it deserves “civil or criminal prosecution” he shows either considerable ignorance of his own subject or a remarkable degree of identification with his clients.

    Of course, Sugden points out that anti-competitive arrangements between manufacturers and resellers may be disrupted by gray-market transactions (in genuine goods). The only proper response to that is “so what?” Business should be competitive. If some manufacturer can’t persuade his own business partners to uphold some anti-competitive scheme without government intervention, he has no one to blame but himself.

    I look forward to reading Sugden’s book, but if he wrote it just to defend the anti-market practices of his clients he’s not going to win many plaudits.

    *Of course nothing is free. From the summary here presented, it appears Sugden thinks taxpayers should pay US police, prosecutors, courts, etc. to assist manufacturers to cheat those very same taxpayers via pestilential price-discrimination schemes. Imagine if the police existed to force schoolboy victims to suffer lunch-money-stealing bullies– that is approximately what Sugden seems to be asking for.