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Counterfeiters: Foes or Friends? How Do Counterfeits Affect Different Product Quality Tiers?

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  • Yi Qian
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    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.

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    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16785.

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    Date of creation: Feb 2011
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    Handle: RePEc:nbr:nberwo:16785

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    1. Mariko Sakakibara & Lee Branstetter, 1999. "Do Stronger Patents Induce More Innovation? Evidence from the 1988 Japanese Patent Law Reforms," NBER Working Papers 7066, National Bureau of Economic Research, Inc.
    2. Hui Kai-Lung & Png Ivan, 2003. "Piracy and the Legitimate Demand for Recorded Music," The B.E. Journal of Economic Analysis & Policy, De Gruyter, De Gruyter, vol. 2(1), pages 1-24, September.
    3. McCalman, P., 1999. "Reaping What You Sow: An Empirical Analysis of International Patent Harmonization," ANU Working Papers in Economics and Econometrics, Australian National University, College of Business and Economics, School of Economics 1999-374, Australian National University, College of Business and Economics, School of Economics.
    4. Rafael Rob & Joel Waldfogel, 2004. "Piracy on the High C's: Music Downloading, Sales Displacement, and Social Welfare in a Sample of College Students," NBER Working Papers 10874, National Bureau of Economic Research, Inc.
    5. Petra Moser, 2005. "How Do Patent Laws Influence Innovation? Evidence from Nineteenth-Century World's Fairs," American Economic Review, American Economic Association, American Economic Association, vol. 95(4), pages 1214-1236, September.
    6. Jean O. Lanjouw & Iain Cockburn, 2000. "Do Patents Matter?: Empirical Evidence after GATT," NBER Working Papers 7495, National Bureau of Economic Research, Inc.
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    Cited by:
    1. Rosalie Liccardo Pacula & Srikanth Kadiyala & Priscillia Hunt & Alessandro Malchiodi, 2012. "An Alternative Framework for Empirically Measuring the Size of Counterfeit Markets," NBER Working Papers 18171, National Bureau of Economic Research, Inc.

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