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Counterfeiting and Negative Consumption Externalities – A Closer Look

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  • Jonas Häckner

    ()

  • Astri Muren

    ()

Abstract

We extend the work of Grossman and Shapiro (J Econ 103:79–100, 1988 ) on consumption externalities in prestige goods markets, and model a general aversion towards large levels of output interacting with an aversion towards copies in particular. These externalities play the role of protecting the market share of the producer of originals. We show that the well-established result under positive network externalities, that piracy is an equilibrium, extends to the case of negative consumption externalities. When externalities are pronounced enforcement should be strict, while in markets subject to moderate externalities there are no strong arguments in favor of a strict policy. Copyright Springer Science+Business Media New York 2015

Suggested Citation

  • Jonas Häckner & Astri Muren, 2015. "Counterfeiting and Negative Consumption Externalities – A Closer Look," Journal of Industry, Competition and Trade, Springer, vol. 15(4), pages 337-350, December.
  • Handle: RePEc:kap:jincot:v:15:y:2015:i:4:p:337-350
    DOI: 10.1007/s10842-015-0196-6
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    References listed on IDEAS

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    4. Motta, Massimo, 1993. "Endogenous Quality Choice: Price vs. Quantity Competition," Journal of Industrial Economics, Wiley Blackwell, vol. 41(2), pages 113-131, June.
    5. Grilo, Isabel & Shy, Oz & Thisse, Jacques-Francois, 2001. "Price competition when consumer behavior is characterized by conformity or vanity," Journal of Public Economics, Elsevier, vol. 80(3), pages 385-408, June.
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    12. Gene M. Grossman & Carl Shapiro, 1988. "Foreign Counterfeiting of Status Goods," The Quarterly Journal of Economics, Oxford University Press, vol. 103(1), pages 79-100.
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    More about this item

    Keywords

    L13; D62; Consumption externalities; Counterfeiting; Product differentiation;

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • D62 - Microeconomics - - Welfare Economics - - - Externalities

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