Working Paper: NBER ID: w1876
Authors: Gene M. Grossman; Carl Shapiro
Abstract: We analyze a two-country model of trade in both legitimate and counterfeit products. Domestic firms own trademarks and establish reputations for delivering high-quality products in a steady-state equilibrium. Foreign suppliers export legitimate low-quality merchandise and counterfeits of domestic brand-name goods. Heterogeneous home consumers either purchase low-quality imports or buy brand-name products, rationally expecting some degree of counterfeiting of the latter. We characterize a counterfeiting equilibrium and explore its properties. We describe the positive and normative effects of counterfeiting in comparison with a no-counterfeiting benchmark. Finally, we provide a welfare analysis of border inspection policy and of policy regarding the disposition of counterfeit goods that are confiscated at the border.
Keywords: No keywords provided
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| counterfeiting (K42) | foreign factor prices (F16) |
| counterfeiting (K42) | price of imported generic products (F14) |
| counterfeiting (K42) | harm to consumers of brand-name products (D18) |
| counterfeiting (K42) | price-quality mix of brand-name products (L15) |
| counterfeiting (K42) | domestic welfare (I38) |
| counterfeiting (K42) | world welfare (I30) |
| counterfeiting (K42) | foreign welfare (F35) |
| increasing inspection resources (H76) | market share of counterfeits (L81) |
| increasing inspection resources (H76) | quality of products (L15) |
| increasing inspection resources (H76) | domestic welfare (I38) |