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

Yeung, Godfrey and Mok, Vincent (2006) Regional Monopoly and Interregional and Intraregional Competition: The Parallel Trade in Coca-Cola between Shanghai and Hangzhou in China. Economic Geography, 82 (1). pp. 89-109. ISSN 0013-0095

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Abstract

This article uses a “principal-agent-subagent” analytical framework and data that were 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 geographic and theoretical implications for the regional monopolies that have been artificially created by Coca-Cola in China. The parallel trade in Coca-Cola is sustained by its intraregional 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), since 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 subagent) 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 nondesignated Coca-Cola market of Hangzhou by crossing the geographic boundary between the two regional monopolies devised by Coca-Cola. The existence of parallel trade in Coca-Cola promotes interregional competition between the Shanghai and Hangzhou bottlers (the agents). This article enhances an understanding of the economic geography of spatial equilibrium, disequilibrium, and quasi-equilibrium of a transnational corporation's distribution system and its artificially created market boundary in China.

Item Type: Article
Additional Information: Published by Clark University
Keywords: regional monopoly; interregional competition; intraregional competition;parallel trade; Coca-Cola; China
Schools and Departments: School of Global Studies > Geography
School of Law, Politics and Sociology > Sociology
Subjects: G Geography. Anthropology. Recreation > G Geography (General)
H Social Sciences > HD Industries. Land use. Labour > HD0028 Management. Industrial Management
H Social Sciences > H Social Sciences (General)
H Social Sciences > HB Economic theory. Demography
Depositing User: Godfrey Yeung
Date Deposited: 19 Sep 2006
Last Modified: 10 Mar 2017 15:13
URI: http://sro.sussex.ac.uk/id/eprint/212
Google Scholar:1 Citations

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