Reselling or agency selling? The implication of non-deceptive counterfeits in the luxury industry

This paper studies selling format choice for authentic product in the presence of non-deceptive counterfeit. Specifically, we consider a platform supply chain where a brand manufacturer and a counterfeiter can sell their products through a common e-platform. Two prevalent selling formats are offered in the market, i.e., reselling and agency selling formats. By developing a game-theoretical model, we explore how the existence of counterfeit would affect the selling format preferences of each party, the equilibrium selling mode and the strategic insights into their different choices. The findings show that the selling format choices would be jointly affected by the commission rate and the imitation level. Interestingly, we find that if the counterfeit is highly imitative to the authentic product, the manufacturer still prefers the agency selling format despite a high commission rate. Moreover, when the commission rate and the imitation level are not very high, the manufacturer/counterfeiter wants to sell through the agency selling format while its competitor chooses the reselling format. However, in equilibrium, we show that both parties would choose the agency selling format, leading to sub-optimal performances or even the prisoner’s dilemma in this scenario. Our insight also implies that the counterfeiter would not necessarily benefit from selling a highly imitated product. The more it imitates, the less profitable it may be in equilibrium.