Piracy Versus Monopoly in the Market for Conspicuous Consumption
University of London, Royal Holloway College - Department of Economics
When luxury purchases signal buyers' incomes, a monopoly provider of a luxury good can deliver the signals with greater efficiency than competitive providers. If new entrants sell counterfeit goods at competitive prices, consumers will have to buy larger quantities of luxury goods to transmit the same signal, thereby creating inefficiency. And new entrants will in fact cause competitive prices to prevail when they produce indistinguishable replicas of existing luxury goods. If new entrants are prohibited from producing exact copies, welfare performance can be better. We also find a trade-off among the goods that can serve as income signals: the goods that signal efficiently display a large gap between between marginal cost and the price a monopoly charges, but the same goods offer the greatest rewards to counterfeiting.
Number of Pages in PDF File: 33
Keywords: conspicuous consumption, piracy, separation, pooling
JEL Classification: D11, D42, D82, H21, L10working papers series
Date posted: March 29, 2012 ; Last revised: September 26, 2013
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo7 in 0.266 seconds