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Counterfeiters: Foes or Friends? How Do Counterfeits Affect Different Product Quality Tiers?

39 Pages Posted: 14 Feb 2011  

Date Written: February 2011

Abstract

A key concern about counterfeits and weak intellectual property protection is that they may hamper innovation by displacing legitimate sales. This paper combines a natural policy experiment with randomized lab experiments to estimate the heterogeneous impacts of counterfeiting on the sales and consumer purchase intent related to branded products of various quality levels. I collect new product-line-level panel data (1993-2004) on Chinese shoe companies. I identify heterogeneous effects of counterfeit entry on sales of authentic products of three quality tiers, finding that counterfeits have both advertising effects for a brand and substitution effects for authentic products, additionally the effects linger for some years. The advertising effect dominates the substitution effect for high-end authentic-product sales, and the substitution effect outweighs the advertising effect for low-end product sales. The positive effect of counterfeits is most pronounced for high-fashion products (such as women's high-leg boots and dress shoes), for shoes tailored to young customers, and for high-end products of brands not yet well-known at the time of counterfeiter entry.

Suggested Citation

Qian, Yi, Counterfeiters: Foes or Friends? How Do Counterfeits Affect Different Product Quality Tiers? (February 2011). NBER Working Paper No. w16785. Available at SSRN: https://ssrn.com/abstract=1759857

Yi Qian (Contact Author)

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

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