4 Examples of a Grey Market

John Spacey, August 01, 2018

A grey market is a legal sale of an authentic good that is sold by an entity not recognized by the producer. This has several common variations:

Unavailable Goods

It is common for ecommerce sellers and retailers to import goods that aren't officially available locally. In other words, the manufacturer has no distribution capabilities in the country where the goods are sold.

Arbitrage

It is common for producers to charge higher prices in one country than another. This represents an opportunity for sellers to import goods and sell them more cheaply than official distributors. For example, a European luxury item may be sold at a price that is 70% higher in Japan. This allows for ecommerce sellers to compete with the brand by importing the goods from Europe and selling them at a lower price.

Convenience

Grey markets allow goods to be sold through distribution channels that are more convenient for customers. For example, a brand shop with no ecommerce presence in a particular country and only two locations may see items purchased and resold on an ecommerce platform. This provides a service to customers by making goods more accessible.

Regulations

In some cases, regulations that would apply to the producer if they opened up a local shop do not apply to a small seller who imports a small number of items. For example, if you import a million cars you typically need to comply to local regulations such as having the steering wheel on the correct side for local roads. In some countries, this doesn't apply if you import a single vehicle as an enthusiast.

Why Grey?

The term grey market is an analogy to black market. This term is encouraged by producers who strongly want to discourage the practice by giving it a negative sounding name. A less negative term is "direct import." By definition, a grey market is legal. Any sale that isn't legal is termed a black market.

Grey Market & Competition

A grey market encourages competition and may improve prices and customer experience. For example, a producer has incentive to provide support and helpful customer service to distinguish official distributors from from grey market sellers.

Notes

Producers typically dislike grey markets because they want to control the quality of their distribution network. Also, producers may implement price discrimination to charge customers in different areas different prices based on their willingness to pay.

The legality of grey markets is typically supported by competition law and the general principle that if you own a good you are allowed to sell it such as the first sale doctrine. Nevertheless, producers often campaign for laws that restrict such practices. They may also implement technologies such as region codes for media that make direct imports difficult.

It is a best practice for sellers to notify customers that they have no relationship with the producer. Customers who buy grey market goods may not be eligible for support and warranties.

Grey market sellers are not permitted to use trademarks they do not own. They can describe their goods accurately but may run into problems if they use logos and so forth that do not belong to them. Importing certain items from abroad may not be legal based on various import restrictions in your country.

The article above is a general overview of a business concept that should not be used as legal advice.

Overview: Grey Market
Type	International Economics
Definition	A legal sale of an authentic good that is sold by an entity not recognized by the producer.
Also Known As	Direct Import Gray Market
Related Concepts	International Economics » Distribution » Arbitrage » Convenience » Distribution Channels » Customer Experience »