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Definition: Grey Goods
When a commodity is traded through the distribution channels, which are unofficial but legal are known as the grey goods. They are goods that are traded in a specific area, where the manufacturer does not intend to sell the product or intends to sell the product, but with different specifications. Grey goods are sold without the knowledge of the original manufacturer. They are typically less costly than the ones that are available by the authorised distributor. Also, they might be made to pertain to some jurisdiction. Example: A factory unlocked version of IPhone 4. It is made to suit the US standards, but is sold in India for a lesser price than the IPhone made for Indian standards.
When it comes to such Grey goods, the manufacturer does not provide any warranty for the product. A consumer might save by buying the product through the grey market, but might even bear heavy losses due to lack of warranty, if something happens to the product. Also, the manufacture may provide with a warranty on such products, but the warranty might not be applicable in that region or country.
Grey trade occurs when the product is differently priced in different markets. It may also occur if specific version of a commodity is unavailable or yet to be launched in some region. The traders generally, buy these goods in bulk from some country, where the commodity is moderately priced, at retail or wholesale price and then sell them in some other region, where the commodity is heavily priced, at a price higher enough to achieve profits but at a cost lesser than the retail price.
Grey goods typically include Cameras, cell phones, all types of electronics, automobiles etc. The manufacturers warn users from buying such products. Also, the original manufacturer suffers a great loss due to the sale of such goods, since, the sales go down, goodwill is reduced etc.
There are certain countries that have imposed a ban on such grey trade. The grey goods are not fake goods, they are the original ones produced by the original manufacturer.
Example: In Japan, one cannot use a car for more than 5 years. After a duration of 5 years, the vehicle needs to undergo a test, failing which the vehicle owner might need to change the whole car system, which is a very costly exercise. Therefore, people sell their cars, which are generally in good working condition to some traders. These traders then export these cars to regions in Europe, where these cars are available for a very higher cost or are not available at all. This is Grey trade.