What is the 'Grey Market'

The grey market refers to goods which have been manufactured by or with the consent of the brand owner, but are sold outside of the brand owner's approved distribution channels – which can be perfectly legal. In the securities markets, the grey market is a market where a company's shares are traded, usually before they are issued in an initial public offering (IPO).

BREAKING DOWN 'Grey Market'

A grey market in the securities markets, is an over-the-counter market where dealers execute orders for stocks and bonds for preferred customers before they have been issued. These sales are contingent upon the issuance actually taking place, and allows underwriters and the issuer to determine demand and price the securities accordingly before the initial public offering (IPO) or bond issue. In grey market trading, while the trade is binding, it cannot be settled until official trading begins.

Grey Market Goods

Grey market goods are products sold by a manufacturer or their authorized agent outside the terms of the agreement between the reseller/distributor and the manufacturer. These are legal non-counterfeit goods manufactured abroad and imported into the U.S. without the consent of the trademark holder, and sold through unauthorized dealers. Though manufacturers labeled these resold products as the "grey market" to associate them with illegal “black market” products, the U.S. Supreme Court has upheld the idea that grey market products are legal for resale in the U.S., regardless of where they were produced or originally sold. The one exception is where the trademark owner has a contractual agreement with the manufacturer not to import the goods into the U.S.

They may be original equipment manufacturer (OEM) goods sold more cheaply elsewhere, or cheaper — though not necessarily lower quality — aftermarket goods. And they may lack a U.S. manufacturer’s warranty because the goods were originally intended for sale outside the U.S., or the specifications may fail to comply with U.S. regulatory requirements.

The U.S. Grey Market in Pharmaceuticals

The high cost of popular and branded prescription medications in the U.S. has created a large grey market. Pharmaceutical prices can vary significantly between countries, which is why some consumers are prepared to travel to other countries to buy their medicines. In the U.S., Pfizer and the pharmaceutical industry have been waging a legal battle against the re-importation of drugs from Canada, where pharmaceuticals are significantly cheaper in than in America. In the 2016 presidential election, many candidates proposed legalizing online pharmacies, which millions of Americans already use.

Levis Strauss Jeans and the E.U. Grey Market

U.K.-based supermarket giant Tesco began to sell discounted Levi's jeans in the late 1990s, which it had bought on the E.U. grey market. By buying them from countries with lower wholesale prices, it was able to undercut Levi’s approved outlets by nearly half. Levi Strauss went to court and claimed this trade violated European trademark laws and damaged its brand.

In 2001, the European Court of Justice ruled that grey market products are legal for resale in the E.U., provided that the equipment was originally sold by the manufacturer inside the E.U. Levi Strauss could, therefore, not restrict how Tesco acquires jeans within the E.U., though acquiring goods from outside the E.U. was prohibited. However, in November 2016, the U.K. Supreme Court ruled that the distribution of grey market goods without the consent of the brand owner is a criminal offense.

RELATED TERMS
  1. Grey Wave

    Grey wave describes an investment or company thought to be profitable ...
  2. Grey Swan

    A grey swan is an event that is possible and known, and is potentially ...
  3. Brand

    A brand is an identifying symbol, mark, logo, name, word and/or ...
  4. Consumer Goods

    Consumer goods are the products purchased by the average consumer. ...
  5. Mill Levy

    The assessed property tax rate used by local governments and ...
  6. Distribution Channel

    A distribution channel is a chain of businesses or intermediaries ...
Related Articles
  1. Tech

    Which Cryptocurrencies Will Survive A Crash In The Markets?

    There are 1,385 cryptocurrencies on the market today. Some experts say 90% would not survive a crash.
  2. Managing Wealth

    Trade Name Vs. Trademark: Know the Difference

    Understand the differences between a trade name and a trademark, the different functions they serve and registration considerations for business owners.
  3. Insights

    British Manufacturing Shrugs off Brexit, For Now

    Markit's latest survey shows British manufacturers basking in the glow of cheap sterling. But what happens when the EU's trade deals no longer apply?
  4. Insights

    Britain to Lose Access to EU Single Market

    The British government will seek a clean break from the EU in what will be a "hard Brexit."
  5. Investing

    Will the UK Leave the EU?

    Britain is edging towards leaving the EU according to polls that show the UK's future membership of the EU is uncertain.
  6. Investing

    Brexit: Would the Swiss Model Work?

    Learn how the Swiss model would work for the UK after Brexit.
  7. Insights

    Europe Talks Tough on Brexit Deal in Leaked Documents

    The European Parliament wants its way on migrants, money, courts and, most importantly, time.
  8. Insurance

    Big Pharma: Will Price Pressure Happen No Matter What?

    Watch out for a possible decline in pharmaceutical stock prices, thanks to a renewed debate about the role of government policy and macroeconomic headwinds.
RELATED FAQS
  1. What is an original equipment manufacturer (OEM) in the automotive sector?

    Learn more about OEM, VAR, and aftermarket manufacturers – and how they compete for customers. Explore industry trends that ... Read Answer >>
  2. What are typical forms of capital assets within a manufacturing company?

    Learn the typical forms of capital assets for a manufacturing company, such as land, buildings, equipment, goodwill and trademarks. Read Answer >>
Trading Center