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Should non-genuine products be expelled from markets?

Author

Listed:
  • Keisuke Hattori

    () (Faculty of Economics, Osaka University of Economics)

  • Keisaku Higashida

    () (School of Economics, Kwansei Gakuin University)

Abstract

We develop a model in which a `genuine' producer supplying genuine products competes with many `non-genuine' producers supplying the compatible third-party or generic products. We examine whether non-genuine products should be expelled from markets. In particular, we focus on the genuine producer's strategies for driving out non-genuine products: running comparative advertising, building technical barriers, and improving the quality of genuine products. Although the small amount of spending on advertising or building technical barriers improves social welfare, their equilibrium amounts are socially excessive. The quality improvement may raise or reduce welfare, depending on the degree of patent protection. We also find that prohibition of entry of non-genuine producers may improve welfare by discouraging the genuine producer from implementing the drive-out strategies.

Suggested Citation

  • Keisuke Hattori & Keisaku Higashida, 2015. "Should non-genuine products be expelled from markets?," Discussion Paper Series 126, School of Economics, Kwansei Gakuin University, revised Mar 2015.
  • Handle: RePEc:kgu:wpaper:126
    as

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    File URL: http://192.218.163.163/RePEc/pdf/kgdp126.pdf
    File Function: First version, 2015
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    References listed on IDEAS

    as
    1. Wright, Donald J., 1999. "Optimal patent breadth and length with costly imitation," International Journal of Industrial Organization, Elsevier, vol. 17(3), pages 419-436, April.
    2. Keisuke Hattori & Keisaku Higashida, 2012. "Misleading advertising in duopoly," Canadian Journal of Economics, Canadian Economics Association, vol. 45(3), pages 1154-1187, August.
    3. Avinash Dixit & Victor Norman, 1978. "Advertising and Welfare," Bell Journal of Economics, The RAND Corporation, vol. 9(1), pages 1-17, Spring.
    4. Glaeser, Edward L. & Ujhelyi, Gergely, 2010. "Regulating misinformation," Journal of Public Economics, Elsevier, vol. 94(3-4), pages 247-257, April.
    5. Keisuke Hattori & Keisaku Higashida, 2015. "Who Benefits from Misleading Advertising?," Economica, London School of Economics and Political Science, vol. 82(328), pages 613-643, October.
    6. Nancy T. Gallini, 1992. "Patent Policy and Costly Imitation," RAND Journal of Economics, The RAND Corporation, vol. 23(1), pages 52-63, Spring.
    7. Hattori, Keisuke & Higashida, Keisaku, 2014. "Misleading advertising and minimum quality standards," Information Economics and Policy, Elsevier, vol. 28(C), pages 1-14.
    8. James Bessen & Eric Maskin, 2009. "Sequential innovation, patents, and imitation," RAND Journal of Economics, RAND Corporation, vol. 40(4), pages 611-635.
    9. Mizuno, Makoto & Odagiri, Hiroyuki, 1990. "Does advertising mislead consumers to buy low-quality products?," International Journal of Industrial Organization, Elsevier, vol. 8(4), pages 545-558, December.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Genuine products; advertising; technical barriers; anti-trust law;

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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