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When shopping isn't black and white

Buying on the gray market - where products made for overseas are sold in the United States - can save you money but often leave you with invalid warranties and hard-to-get parts or accessories.

By DAVE GUSSOW

© St. Petersburg Times, published July 2, 2001


Buying on the gray market -- where products made for overseas are sold in the United States -- can save you money but often leave you with invalid warranties and hard-to-get parts or accessories.

You're shopping online for a digital camera. You check prices, reviews, merchants -- anything to get the most bang for the buck.

Once you narrow your choice to a particular camera, price plays a bigger role. But you might want to keep in mind the hidden reason why some merchants can offer the same camera for a lot less than others.

It's called the gray market, where not all products are created equal. It's the sale of goods outside of the normal channels created by manufacturers and distributors, in many cases by companies that bring into this country merchandise intended to be sold in foreign markets.

The less-expensive camera may look identical to its authorized cousins on other Web sites but not have a warranty valid in the United States. Parts and accessories might not be available for it. The camera might have to be shipped overseas for service. The user's manual might be entirely in a foreign language.

"The onus is on the consumer to inquire about these issues," said Seth Lipner, a professor at Baruch College in New York. "I don't necessarily think that there's anything wrong with these products, but I think that's the consumer issue."

The driving force for gray market goods is price. Lipner cited factors such as the costs of importing, exporting and labor for the price differences. But it also can be much simpler: charging what the market will bear. A more affluent market will pay more, so products sold overseas at lower prices make their way back to the United States, where they're offered at seemingly bargain prices. And it's perfectly legal.

"More competition is better than less," said Lipner, author of The Legal and Economic Aspects of Gray Market Goods. "A lower price is better than higher. Price discrimination kind of rankles me, but I think the consumers need to know what they're getting."

A recent check on a Nikon Coolpix 880 digital camera at MySimon.com, a shopping comparison site, showed a low price of $519. But a call to the merchant revealed that it came with an international warranty. Getting one with a U.S. warranty added $100, for a total of $619, so that merchant no longer offered the best deal. Working down the comparison list, the low price for the same camera with a U.S. warranty was $579.

Experts say the gray market has not been a big issue for consumers in recent years, but in the sometimes murky world of online shopping it adds another level of uncertainty.

Comparison sites such as MySimon.com simply list the prices, and merchant Web sites are not required to disclose that the items for sale are not made for the United States.

The gray market is not confined to electronics. Last year, Congress considered legislation to ban gray market cigarettes, which are made by U.S. companies for foreign markets. The cigarettes have been diverted back into this country and sold below market prices, often with teenagers buying them.

"We used to see a lot of soaps and household stuff," Lipner said. "It varies because for the gray market to exist there has to be a market imbalance."

The Council of Better Business Bureaus (www.bbbonline.org) has not received complaints about online gray market goods, according to Holly Cherico, vice president for communications. But the organization's code of conduct states companies should disclose warranty limitations or conditions, as well as offer printed information in more than one language. (It also has more on the hazards of gray market shopping at www.bbb.org/library/greymark.asp.)

Florida and at least 43 other states have laws dealing with aspects of the gray market, but there is no federal legislation dealing broadly with it.

David Heim, managing editor of Consumer Reports magazine (www.consumerreports.org), says consumers should consider the potential hassle of dealing with an international warranty, but the gray market doesn't have to be a deal breaker.

"The kinds of products that have a presence in the gray market -- digital cameras, VCRs, CD players -- either tend to be quite reliable and not give any trouble, or they're going to be so inexpensive that it may be easier to just buy a new one than get the old one fixed," Heim said.

But how much of a loss someone can stand is an individual decision.

"I have bought electronics online, and it worked for me," said Gary Shapiro, president and chief executive of the Consumer Electronics Association (www.ce.org).

Because of the potential pitfalls, from invalid warranties to possibly inferior goods, the gray market "generally is not a good thing for consumers," Shapiro said. He usually limits his online purchases to items such as an MP3 player. For a high-definition TV that costs thousands of dollars, "I absolutely went to a store," he said.

For shoppers, experts offered a number of tips:

Check the company you're buying from. If it's a Web site, call the phone number listed there. Ask about the warranty and whether the company is an authorized dealer. Have complaints been filed against it with consumer affairs agencies?

Buy a brand that is known for reliability.

Use shopping comparison sites such as MySimon.com, which screen some of the vendors they list.

Even the experts disagree on the merits of gray market shopping.

"The U.S. consumer is known as the most discriminating consumer," Shapiro said. "You have to sell quality products in the U.S., which may not be true in other countries."

Professor Lipner says it's simply part of the marketplace at work.

"There's nothing wrong with searching out bargains," Lipner said. "There's nothing wrong with trying to pay less for the same article of commerce."

- Information from Times files was used in this report. Dave Gussow can be reached at gussow@sptimes.com or (727) 445-4228.

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