Conspicuous Consumption on the Long Tail: How Can Luxury Brands Benefit from Counterfeits?

55 Pages Posted: 7 Oct 2016 Last revised: 15 Nov 2016

See all articles by Pinar Yildirim

Pinar Yildirim

University of Pennsylvania - The Wharton School

Zhenqi Liu

University of Pennsylvania

Z. John Zhang

University of Pennsylvania - The Wharton School - Department of Marketing

Date Written: October 5, 2016

Abstract

We study how luxury brands can use product line expansion as a strategy when facing a threat from the counterfeit market. Consumers who are status-conscious consider the benefits and costs of buying luxury items in order to strengthen the beliefs of others about their status. Our findings suggest that product line expansion strategy serves these high-end consumers and their motives to strengthen their status image. In a market with counterfeiters, consumers have an incentive to buy additional products in order to reduce the uncertainty of their status signals. Increasing consumption makes it harder for others to imitate status when authentic brands signal quality and status with higher precision compared to counterfeits. Since each luxury item purchased contributes to one's status in a marginally declining fashion, it is rational for a luxury brand to expand its product line such that it maintains its core product and introduces peripheral products with lower status signalling benefits and prices. We further show that an increasing counterfeit market share can increase status-conscious consumers' willingness to pay for luxury goods. As a result, presence of counterfeiters can increase the profit of a luxury brand.

Suggested Citation

Yildirim, Pinar and Liu, Zhenqi and Zhang, Z. John, Conspicuous Consumption on the Long Tail: How Can Luxury Brands Benefit from Counterfeits? (October 5, 2016). Available at SSRN: https://ssrn.com/abstract=2848511 or http://dx.doi.org/10.2139/ssrn.2848511

Pinar Yildirim (Contact Author)

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

Zhenqi Liu

University of Pennsylvania ( email )

Philadelphia, PA
United States

Z. John Zhang

University of Pennsylvania - The Wharton School - Department of Marketing ( email )

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