Working Paper: NBER ID: w1915
Authors: Gene M. Grossman; Carl Shapiro
Abstract: We study the positive and normative effects of counterfeiting, i.e.,trademark infringement, in markets where consumers are not deceived by forgeries.The fact that consumers are willing to pay more for counterfeits than for generic merchandise of similar quality suggests that they value the prestige, or status, associated with brand-name trademarks. Counterfeiters of status goods impose a negative externality on consumers of genuine items, as fakes degrade the status associated with a given label. But counterfeits allow consumers to unbundle the status and quality attributes of the brand-name products, and alter the competition among oligopolistic trademark owners. We analyze two policies designed to combat counterfeiting: enforcement policy which increases the likelihood of confiscation of illegal items, and the imposition of a tariff on low-quality imports.
Keywords: counterfeiting; status goods; trademark infringement; market dynamics; consumer behavior
JEL Codes: D43; L15; O34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Counterfeiters of status goods (L67) | Decrease in perceived value of genuine products (L15) |
| Higher enforcement (K40) | Decrease in counterfeit goods in the market (F69) |
| Higher enforcement (K40) | Increase in perceived value of genuine products (D46) |
| Imposition of tariffs on low-quality imports (F18) | Increase the supply of high-quality merchandise (L15) |