Deceptive counterfeits and anti-counterfeiting: a blessing in disguise?

Despite various anti-counterfeiting measures, counterfeits thrive as one of the biggest threats to product brand innovation and sales. This study employs an analytical game theoretical model to examine the strategic interactions between an authentic brand firm and a deceptive counterfeiter to provide managerial implications for anti-counterfeiting. Firstly, we find the authentic product firm can be worse off with a heavier penalty for counterfeits. Secondly, the authentic product firm benefits from more costly anti-counterfeiting with sufficiently cheap quality improvement and counterfeiting. Next, the authentic product firm benefits from deeper counterfeit penetration when the penalty is sufficiently high and counterfeiting is costly. Finally, we reveal that the counterfeiter only benefits from deeper counterfeit penetration when the counterfeit imitation is sufficiently costly, or the existing level of counterfeit penetration is not too high. To verify the robustness of the results, we further extend the main model to multiple scenarios including consumers' brand loyalty, counterfeit penetration uncertainty, etc