Counterfeit-Product Trade

45 Pages Posted: 7 Apr 2004 Last revised: 19 Aug 2010

See all articles by Gene M. Grossman

Gene M. Grossman

Princeton University - Woodrow Wilson School of Public and International Affairs; Princeton University - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Carl Shapiro

University of California, Berkeley - Haas School of Business

Date Written: March 1986

Abstract

We analyze a two-country model of trade in both legitimate and counterfeit products. Domestic firms own trademarks and establish reputations for delivering high-quality products in a steady-state equilibrium. Foreign suppliers export legitimate low-quality merchandise and counterfeits of domestic brand-name goods. Heterogeneous home consumers either purchase low-quality imports or buy brand-name products, rationally expecting some degree of counterfeiting of the latter. We characterize a counterfeiting equilibrium and explore its properties. We describe the positive and normative effects of counterfeiting in comparison with a no-counterfeiting benchmark. Finally, we provide a welfare analysis of border inspection policy and of policy regarding the disposition of counterfeit goods that are confiscated at the border.

Suggested Citation

Grossman, Gene M. and Shapiro, Carl, Counterfeit-Product Trade (March 1986). NBER Working Paper No. w1876. Available at SSRN: https://ssrn.com/abstract=341830

Gene M. Grossman (Contact Author)

Princeton University - Woodrow Wilson School of Public and International Affairs ( email )

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Princeton University - Department of Economics ( email )

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CESifo (Center for Economic Studies and Ifo Institute) ( email )

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Centre for Economic Policy Research (CEPR)

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National Bureau of Economic Research (NBER)

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Carl Shapiro

University of California, Berkeley - Haas School of Business ( email )

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HOME PAGE: http://faculty.haas.berkeley.edu

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