Working Paper: NBER ID: w16785
Authors: Yi Qian
Abstract: A key concern about counterfeits and weak intellectual property protection is that they may hamper innovation by displacing legitimate sales. This paper combines a natural policy experiment with randomized lab experiments to estimate the heterogeneous impacts of counterfeiting on the sales and consumer purchase intent related to branded products of various quality levels. I collect new product-line-level panel data (1993-2004) on Chinese shoe companies. I identify heterogeneous effects of counterfeit entry on sales of authentic products of three quality tiers, finding that counterfeits have both advertising effects for a brand and substitution effects for authentic products, additionally the effects linger for some years. The advertising effect dominates the substitution effect for high-end authentic-product sales, and the substitution effect outweighs the advertising effect for low-end product sales. The positive effect of counterfeits is most pronounced for high-fashion products (such as women's high-leg boots and dress shoes), for shoes tailored to young customers, and for high-end products of brands not yet well-known at the time of counterfeiter entry.
Keywords: counterfeits; product quality; innovation; brand management
JEL Codes: L25; L26; L6
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Counterfeiting (K42) | Sales of high-end authentic products (L81) |
| Counterfeiting (K42) | Sales of low-end authentic products (L81) |
| Counterfeiting (K42) | Brand awareness (M37) |
| Brand awareness (M37) | Sales of high-end authentic products (L81) |