Piracy versus Monopoly in the Market for Conspicuous Consumption
University of London, Royal Holloway College - Department of Economics
Economic Journal, Forthcoming
When luxury purchases signal the incomes of buyers, a monopoly will deliver signals efficiently. If competitors sell counterfeit copies of luxury goods at low prices, consumers will have to buy larger quantities or higher qualities to transmit the same signal, which wastes resources. Entrants do maximal harm when they produce indistinguishable replicas of existing luxury goods which causes prices to fall the furthest. The delivery of signals presents a trade-off: the goods that signal efficiently display a large gap between marginal cost and the price a monopoly will charge but this gap offers the greatest rewards to counterfeiting.
Number of Pages in PDF File: 25
Keywords: conspicuous consumption, piracy, separation
JEL Classification: D11, D42, D82, H21, L10
Date posted: March 29, 2012 ; Last revised: March 23, 2016
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