33 Pages Posted: 10 Mar 2008 Last revised: 8 Dec 2009
In this paper, I use a natural experiment to test the impacts of counterfeiting under weak intellectual property rights. I collect new panel data from Chinese shoe companies from 1993-2004. Exploiting the discontinuity of government enforcement efforts for the footwear sector in 1995 and the differences in authentic companies' relationships with the government, I identify and measure the effects of counterfeit entry on authentic prices, qualities, and other market outcomes. The empirical results are explained and generalized by my theoretical framework. First, low-quality counterfeit entrants induce authentic producers to both upgrade product quality and invest in self-enforcement. Second, vertical integration and other costly devices are used for signaling and complementing a company's own enforcements against counterfeits. Third, all these strategies push up authentic prices and are effective in reducing counterfeit sales.
Keywords: Counterfeit, Intellectual Property Rights, China, Signaling, IV, Shoes
JEL Classification: O34, O31, K42
Suggested Citation: Suggested Citation
Qian, Yi, Impacts of Entry by Counterfeiters. Quarterly Journal of Economics, Vol. 123, No. 4, pp. 1577-1609, November 2008. Available at SSRN: https://ssrn.com/abstract=1104534