Foreign Counterfeiting of Status Goods

31 Pages Posted: 3 May 2004 Last revised: 4 Apr 2015

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: May 1986

Abstract

We study the positive and normative effects of counterfeiting, i.e.,trademark infringement, in markets where consumers are not deceived by forgeries.The fact that consumers are willing to pay more for counterfeits than for generic merchandise of similar quality suggests that they value the prestige, or status, associated with brand-name trademarks. Counterfeiters of status goods impose a negative externality on consumers of genuine items, as fakes degrade the status associated with a given label. But counterfeits allow consumers to unbundle the status and quality attributes of the brand-name products, and alter the competition among oligopolistic trademark owners. We analyze two policies designed to combat counterfeiting: enforcement policy which increases the likelihood of confiscation of illegal items, and the imposition of a tariff on low-quality imports.

Suggested Citation

Grossman, Gene M. and Shapiro, Carl, Foreign Counterfeiting of Status Goods (May 1986). NBER Working Paper No. w1915. Available at SSRN: https://ssrn.com/abstract=344754

Gene M. Grossman (Contact Author)

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

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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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