The paper deals with the imitation of fashion products, an issue that attracts considerable interest in practice. Copying of fashion originals is a major concern of designers and, in particular, their financial backers. Fashion firms are having a hard time fighting imitations, but legal sanctions are not easily implemented in this industry. We study an alternative strategy that has been used by designers. Instead of fighting the imitators in the courtroom, designers fight them in the market. The designer markets her products in separate markets, typically a high class market in which the products are sold in exclusive stores at high prices. Customers in this market seek exclusivity and their utility diminishes when seeing an increasing number of copies around. Their perception of the brand tend to dilute which poses a serious threat to a fashion company. The second market is a middle class market in which there are many more buyers, and the fashion firm competes directly with the imitators in this market. This market can be used to practise price discrimination, to sell off left-over inventories, and to get a spin-off from the design. The paper models the decision problems of the fashion firm and the imitators as a two-period game in which firms make pricing decisions and decisions on when to introduce their products in the markets. In addition, the fashion firm decides how much efforts to spend to increase its brand image in the two markets.
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Paper provided by Dipartimento di Scienze Economiche, Matematiche e Statistiche, Universita' di Foggia in its series Quaderni DSEMS with number
06-2006.