Question

A jean manufacturer would find it profitable to charge higher prices in Europe than in the United States if it could prevent resale between the two countries. What techniques can it use to discourage resale? (Hint: See the Managerial Implication “Preventing Resale.”)

Answer 1

A jean manufacturer who wishes to sell their product at higher prices in Europe than in the United States must be able to prevent resale to be successful. There are several strategies managers can utilize to limit consumers buying their product in the US market and then selling again for a higher price in Europe. The manufacturer can introduce transaction costs that make it more difficult to resell. These could include selling their product only in boutique stores in Europe and not offering online sales. This would require a consumer to go in person and purchase the jeans and would prohibit large quantities being purchased by one consumer as well.

The manufacturer could gain agreement with governments in Europe and the US that their products can only be sold in the manufacturer’s retail locations in those countries or arrange tariffs on imports of their product. The manufacturer could also produce jeans for each region using different size scales or style offerings specific to that region. Different sizing scales could be a deterrent for resale if it isn’t easy to determine the correct size a consumer should purchase when buying from a different region.