Regional Monopoly and Interregional and Intraregional Competition: The Parallel Trade in Coca‐Cola Between Shanghai and Hangzhou in China

Abstract

This article uses a "principal-agent-sub-agent" analytical framework and data collected from field surveys in China to (1) investigate the nature and causes of the parallel trade in Coca-Cola between Shanghai and Hangzhou, and (2) assess the geographical and theoretical implications for the regional monopolies that have been artificially created by Coca-Cola in China. The parallel trade in CocaCola is sustained by its intra-regional rivalry with Pepsi-Cola in Shanghai, where Coca-Cola (China) (the principal) seeks to maximize its share of the Shanghai soft drinks market. This goal effectively supersedes the market-division strategy of Coca-Cola (China), as the gap in wholesale prices between the Shanghai and Hangzhou markets is higher than the transaction costs of engaging in parallel trade.The exclusive distributor of Coca-Cola in the Shanghai market (the sub-agent), makes opportunistic use of a situation in which it does not have to bear the financial consequences of the major residual claimants (the principal and other agents), and has an incentive to enter the non-designated Coca-Cola market of Hangzhou by crossing the geographical boundary between the two regional monopolies devised by Coca-Cola. This promotes inter-regional competition between the Shanghai and Hangzhou bottlers (the agents). This article enhances our understanding of the economic geography of spatial equilibrium, disequilibrium and quasi-equilibrium of a TNC's distribution system and its artificially created market boundary in China.

Manufacturing and Distribution Strategies, Distribution Channels, and Transaction Costs: The Case of Parallel Imported Automobiles

“…Another thread of argument asserts that the existence of parallel imports facilitates market penetration by manufacturers because parallel imports help improve competitiveness in pricing (Maskulka and Gulas, ; Weigand, , ; Michael, ). Similar arguments are also outlined by Bucklin (, ) and Yeung and Mok (). Bucklin (:401) argued that parallel imports can increase manufacturers' market share and profits.…”

“…Bucklin (:401) argued that parallel imports can increase manufacturers' market share and profits. Instead of unraveling TNCs' distribution systems, Yeung and Mok (:104–105) explained that the existence of parallel trade promotes inter‐regional competition between regional monopolies, which increases rather than decreases the total market share of TNCs because of the lower retail prices of parallel imports.…”

“…3 3 Previous research by Yeung and Mok () also suggests that in‐depth interviews with involved players can provide reliable and valuable information necessary to examine parallel imports in the beverage industry.…”

Geographies of production I

“…A range of more recent papers has begun to address this gap between theoretical exposition and empirical evidence (eg, O Riain, 2004;Leinbach and Bowen, 2004;Angel and Rock, 2005;Liu and Dicken, 2006;Hess and Coe, 2006;Weller, 2006;Parthasarathy and Aoyama, 2006;Grote and Taube, 2006;Johns, 2006;Coe and Lee, 2006;Yeung and Mok, 2006;Rock et al, 2006). Importantly, however, Lane and Probert (2004: 263) emphasize that 'to understand the role of firms in global production networks, one first needs to study them in their domestic contexts'.…”