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Foreign Counterfeiting of Status Goods

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  • Grossman, Gene M
  • Shapiro, Carl

Abstract

The authors study the positive and normative effects of counterfeiting, i.e., trademark infringement, in markets where cons umers are not deceived by forgeries. Consumers are willing to pay mor e for counterfeits than for generic merchandise of similar quality be cause they value the prestige associated with brand-name trademarks. Counterfeiters of status goods impose a negative externality on consu mers 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 compe tition among oligopolistic trademark owners. The authors analyze two policies designed to combat counterfeiting: enforcement policy which increases the likelihood of confiscation of illegal items, and the im position of a tariff on low-quality imports. Copyright 1988, the President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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Bibliographic Info

Article provided by MIT Press in its journal Quarterly Journal of Economics.

Volume (Year): 103 (1988)
Issue (Month): 1 (February)
Pages: 79-100

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Handle: RePEc:tpr:qjecon:v:103:y:1988:i:1:p:79-100

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  1. Seade, J, 1985. "Profitable Cost Increases and the Shifting of Taxation : Equilibrium Response of Markets in Oligopoly," The Warwick Economics Research Paper Series (TWERPS) 260, University of Warwick, Department of Economics.
  2. Ethier, Wilfred J, 1986. "Illegal Immigration: The Host-Country Problem," American Economic Review, American Economic Association, vol. 76(1), pages 56-71, March.
  3. Grossman, Gene M & Shapiro, Carl, 1988. "Counterfeit-Product Trade," American Economic Review, American Economic Association, vol. 78(1), pages 59-75, March.
  4. Dixit, Avinash K, 1986. "Comparative Statics for Oligopoly," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 27(1), pages 107-22, February.
  5. Bhagwati, Jagdish N & Hansen, Bent, 1973. "A Theoretical Analysis of Smuggling," The Quarterly Journal of Economics, MIT Press, vol. 87(2), pages 172-87, May.
  6. Martin, Lawrence & Panagariya, Arvind, 1984. "Smuggling, trade, and price disparity: A crime-theoretic approach," Journal of International Economics, Elsevier, vol. 17(3-4), pages 201-217, November.
  7. Pitt, Mark M., 1981. "Smuggling and price disparity," Journal of International Economics, Elsevier, vol. 11(4), pages 447-458, November.
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