Do Consumers’ Ethical Judgments Matter for Purchase Intentions in Online Gray Markets? The Mediating Role of Trust: An Abstract

Firms around the world confront new pressures with the trade of their branded products in unauthorized distribution channels known as gray markets. Gray markets emerge when firms sell their products in different markets at different prices. Differences in prices may stem from exchange rate fluctuations, promotional costs, brand owners’ multitiered pricing schemes, tax differences, or differing consumer preferences. Unlike counterfeits, gray market products are genuine in that they have been manufactured by or for, or are under license from, the brand owner.

Unsurprisingly, gray markets create an array of problems for companies and consumers. Companies invest a considerable amount of time, money, and effort in manufacturing and promoting the goodwill of their products, which reflects in selling prices. Gray marketers take advantage of the market demand and reputation created and maintained by these companies and their authorized channel partners without investing the capital associated with establishing market demand and such reputation. Additionally, gray markets erode consumer goodwill because a product meant for a different market varies from the same product designed for domestic consumption in a variety of ways such as health and safety codes, regional tastes, warranties, and languages. Goodwill is further damaged when brand owners refuse to honor gray market products’ warranties and create a consumer perception of substandard customer service.

An online environment has fueled the growth of online gray market activities due to the Internet’s ease of use, accessibility, and ability to connect consumers with product suppliers worldwide. Efforts by brand owners to contain gray market activities have mostly been unsuccessful. Given that online purchase activities have experienced a drastic increase over the years, many nonprofit organizations such as AGMA (Alliance for Gray Market and Counterfeit Abatement) and BBB (Better Business Bureau) and popular press such as Forbes, Fortune, and The Economist are shedding light on gray markets and educating consumers about the pitfalls of gray market purchases and a gray market’s cost to nations’ economies.

In this paper, we explore consumer perceptions about the ethicality of gray markets and whether their ethical judgments have an influence on their purchase intention in an online shopping context. We further explore the role of trust in this dynamic relationship. We draw on the Hunt-Vitell (H-V) theory of ethics to explain the hypothesized relationships in our conceptual model (Hunt and Vitell 1986, 2006). We test the hypothesized relationships in an experimental study with 114 subjects and discuss the findings.

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