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Grey market

The grey market refers to the flow of goods through distribution channels other than those authorized by the manufacturer or producer.

Unlike those on the black market, grey market goods are not illegal. Instead, they are being sold outside of normal distribution channels by companies having no relationship with the producer of the goods. Frequently this occurs when the price of an item is significantly higher in one country than another. This situation commonly occurs with cigarettes, electronic equipment such as cameras, and wine. Importing certain legally restricted items like prescription drugs probably would be categorized as black market. A company will then buy the item, possibly at the retail price, and import it into a different country. Other times a grey marketer will purchase directly from an authorized distributor. Typically the manufacturer will refuse to honor the warranty of a item purchased from grey market sources, on the grounds that the higher price on the non-grey-market reflects a higher level of service.

The grey market in wine flourishes, particularly in the case of Champagne. Many large Champagne producers do their own importing, and desire to maintain price points in different markets that are roughly independent of each other. Thus a bottle of Champagne might cost US$35 in the U.S. while the same bottle might be only 20 euros in France, for marketing purposes. It is often profitable to buy the wine in Europe, typically from an authorized distributor, and resell it in the U.S. In the case of enormous pricing disparity, it is not uncommon to find a grey marketed wine selling for less at retail than the wholesale price of the authorized distributor. In the case of a large availability disparity between the U.S. and Europe, the grey market price may be the same or higher than the authorized price.

Typically the importer of a wine is the one who worries the most about grey market sources. The winemaker may or may not care what happens to the wine after it is sold, although he or she might complain to appease an importer.

The existence of the grey market is an example of the economic principle called arbitrage.



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