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Foreign Counterfeiting of Status Goods

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  • 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.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1915.

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Date of creation: May 1986
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Publication status: published as Grossman, Gene M. and Carl Shapiro. "Foreign Counterfeiting of Status Goods." From The Quarterly Journal of Economics, Vol. CIII, No. 412, pp. 79-10 0, (February 1988).
Handle: RePEc:nbr:nberwo:1915

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  1. Pitt, Mark M., 1981. "Smuggling and price disparity," Journal of International Economics, Elsevier, vol. 11(4), pages 447-458, November.
  2. 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.
  3. 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.
  4. Grossman, Gene, 1986. "Counterfeit Product Trade," CEPR Discussion Papers 103, C.E.P.R. Discussion Papers.
  5. Ethier, Wilfred J, 1986. "Illegal Immigration: The Host-Country Problem," American Economic Review, American Economic Association, vol. 76(1), pages 56-71, March.
  6. 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.
  7. 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.
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