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Gray markets, also known as parallel imports, have created fierce competition for manufacturers in many industries. We analyze the impact of parallel importation on a price‐setting manufacturer that serves two markets with uncertain demand, and characterize her policy against parallel importation. We show that ignoring demand uncertainty can take a significant toll on the manufacturer's profit, highlighting the value of making price and quantity decisions jointly. We find that adjusting prices is more effective in controlling gray market activity than reducing product availability, and that parallel importation forces the manufacturer to reduce her price gap while demand uncertainty forces her to lower prices. Furthermore, we explore the impact of market conditions (such as market base, price sensitivity, and demand uncertainty) and product characteristics (“fashion” vs. “commodity”) on the manufacturer's policy towards parallel importation. We also provide managerial insights about the value of strategic decision‐making by comparing the optimal policy to the uniform pricing policy that has been adopted by some companies to eliminate gray markets entirely. The comparison indicates that the value of making price and quantity decisions strategically is highest for moderately different market conditions and non‐commodity products.

In this paper, we study three different problems where one class of customers is given priority over the other class. In the first problem, a single server receives two classes of customers with general service time requirements and follows a preemptive-resume policy between them. Both classes are impatient and abandon the system if their wait time is longer than their exponentially distributed patience limits. In the second model, the low-priority class is assumed to be patient and the single server chooses the next customer to serve according to a non-preemptive priority policy in favor of the impatient customers. The third problem involves a multi-server system that can be used to analyze a call center offering a call-back option to its impatient customers. Here, customers requesting to be called back are considered to be the low-priority class. We obtain the steady-state performance measures of each class in the first two problems and those of the high-priority class in the third problem by exploiting the level crossing method. We furthermore adapt an algorithm from the literature to obtain the factorial moments of the low-priority queue length of the multi-server system exactly.

The practice of diverting genuine products to unauthorized gray markets continues to challenge companies in various industries and creates intense competition for authorized channels. Recent industry surveys report that the abuse of channel incentives is a primary reason for the growth of gray market activities. Therefore, it is crucial that companies take the presence of gray markets into consideration when they design contracts to distribute products through authorized retailers. This issue has received little attention in the extensive literature on contracting and supply chain coordination. In this study, we analyze the impacts of gray markets on two classic contracts, wholesale price and quantity discount, in a supply chain with one manufacturer and one retailer when the retailer has the opportunity to sell to a domestic gray market. Our analysis provides interesting and counterintuitive results. First, a classic quantity‐discount contract that normally coordinates the supply chain can perform so poorly in the presence of a gray market that the supply chain would be better off using a wholesale price contract instead. Second, the presence of gray market can also degrade the performance of the wholesale price contract; therefore, a more sophisticated contract is needed for coordinating the supply chain. We show that contracts that solely depend on retailer's order quantity cannot coordinate the supply chain, and provide the conditions for coordinating the supply chain with price‐dependent quantity discount contracts. We also provide comparative statics and show that when there is a gray market, coordinating the supply chain enhances total consumer welfare.

In this paper, we propose approximations to compute the steady-state performance measures of the M/GI/N + GI queue receiving Poisson arrivals with N identical servers, and general service and abandonment-time distributions. The approximations are based on scaling a single server M/GI/1 + GI queue. For problems involving deterministic and exponential abandon times distributions, we suggest a practical way to compute the waiting time distributions and their moments using the Laplace transform of the workload density function. Our first contribution is numerically computing the workload density function in the M/GI/1 + GI queue when the abandon times follow general distributions different from the deterministic and exponential distributions. Then we compute the waiting time distributions and their moments. Next, we scale-up the M/GI/1 + GI queue giving rise to our approximations to capture the behavior of the multi-server system. We conduct extensive numerical experiments to test the speed and performance of the approximations, which prove the accuracy of their predictions.

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G overnments across the world constantly use a variety of measures to contain drug costs in order to increase patient access to critical medications. External Reference Pricing (ERP), or international price comparison, is a commonly employed policy to control prices of pharmaceuticals. External Reference Pricing uses the price(s) of a medicinal product in one or several countries in order to derive a benchmark or reference price for the purposes of setting the price of the product in a given country. Despite potential drawbacks, empirical studies show ERP has been successful in reducing drug prices. Another strategy that can reduce drug prices is legalizing parallel imports of drugs from low-price countries. Motivated by the differences between government policies and the absence of national price management policies in the Unites States, in this study we compare the effects of implementing ERP or authorizing parallel imports on firm profit and different social welfare measures. We find that authorizing parallel imports can result in higher firm profit and/or social welfare than using ERP. We also examine, in a decentralized supply chain, two variations of ERP that are used in practice, the ex-factory-based ERP and the pharmacy purchase price (PPP)-based ERP. We show that despite the ex-factory-based ERP being more common, PPP-based ERP can increase both firm profits and social welfare. Therefore, governments should consider using PPP-based ERP policies. Our findings help generate insights for ongoing policy discussions around measures for controlling drug prices in the United States.

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