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Counterfeiting and Consumption Externalities - A Closer Look

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Author Info

  • Häckner, Jonas

    ()
    (Dept. of Economics, Stockholm University)

  • Muren, Astri

    ()
    (Dept. of Economics, Stockholm University)

Abstract

Counterfeiting of trademarked products is an increasing problem in national and international trade. We contribute to the analysis of how counterfeiting affects markets by extending the work of Grossman and Shapiro (1988a) on consumption externalities in prestige good markets. We model a general aversion towards large levels of output (denoted prestige externalities) interacting with a firm-specific aversion towards the presence of copies in particular (pirate externalities). The framework is used to examine several policy-relevant questions. First, we examine how market prices depend on these externalities and provide conditions for counterfeiting as an equilibrium outcome. Second, we compare market outcomes to outcomes in otherwise identical markets that are not subject to prestige externalities. Third, we describe how the substitutability between copies and originals are related to prestige- and pirate externalities respectively. Fourth, we compare market prices to prices chosen by a benevolent social planner. Finally, we re-visit some policy issues previously discussed in the literature.

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File URL: http://www2.ne.su.se/paper/wp12_02.pdf
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Bibliographic Info

Paper provided by Stockholm University, Department of Economics in its series Research Papers in Economics with number 2012:2.

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Length: 36 pages
Date of creation: 25 Jan 2012
Date of revision:
Handle: RePEc:hhs:sunrpe:2012_0002

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Postal: Department of Economics, Stockholm, S-106 91 Stockholm, Sweden
Phone: +46 8 16 20 00
Fax: +46 8 16 14 25
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Web page: http://www.ne.su.se/
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Related research

Keywords: consumption externalities; counterfeiting; product differentiation;

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  1. Häckner, Jonas & Nyberg, Sten, 1992. "Vanity and Congestion: A Study of Reciprocal Externalities," Working Paper Series 354, Research Institute of Industrial Economics.
  2. Gary Richardson, 2008. "Brand Names Before the Industrial Revolution," NBER Working Papers 13930, National Bureau of Economic Research, Inc.
  3. Motta, Massimo, 1993. "Endogenous Quality Choice: Price vs. Quantity Competition," Journal of Industrial Economics, Wiley Blackwell, vol. 41(2), pages 113-31, June.
  4. Higgins, Richard S & Rubin, Paul H, 1986. "Counterfeit Goods," Journal of Law and Economics, University of Chicago Press, vol. 29(2), pages 211-30, October.
  5. Jen-Te Yao, 2005. "Counterfeiting and an Optimal Monitoring Policy," European Journal of Law and Economics, Springer, vol. 19(1), pages 95-114, January.
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