Abstract: Gray marketing emerges when gray marketers stealthily resell a branded product without the manufacturer's authorization. Previous research has examined gray marketing from various angles, but there lacks study from the perspective of service quaility in a decentralized supply chain where the retailer engages in parallel importation. A gray market structure composed of a manufacturer and a retailer is investigated in this paper. The manufacturer sells products directly to the high-end market, whereas the products are sold to the low-end market through the retailer. The gray market will be formed once the retailer diverts the products into the high-end market. A benchmark model is established without service provision and a service quality model. Through the comparative analysis of the two models, the influence of the manufacturer's after-sales service quality strategy on the gray market scale and firms profit is examined. It is found that service provision increases the prices of low-end product price, gray product and high-end product. In addition, the finding shows that service provision decreases the gray product demand and increases the low-end product demand. Interestingly, it is also found that service provision increases the manufacturer profit and does not always decrease the retailer profit, it could result in a win-win situation. The reason is as follow. On the one hand, service provision decreases the profit of retailer from gray market, on the other hand it also increases the demand of low-end product which increases the retailer profit from low-end market. Whether the total profit of retailer increases or decreases will depend on which effect is taking the dominant place. Our results suggest that the manufacturer service provision is an effective method to manage the gray market problem, which inhibits the gray market demand and increases the profits of manufacturer.

Key words: service provision, gray market, consumer utility, game theory