Prime and Punishment: Can Enforcements Stop Illicit Sellers on E-Commerce Platforms?

Abstract

This paper provides the first exploration of how illicit sellers operate on e-commerce platforms and how they respond to enforcements. I use a novel data set of 71 million illicit — i.e., fraudulent, counterfeit, or replica — items that were removed from online marketplaces. By using natural language processing and computer vision techniques on these products and by quietly tracking business activities of the illicit sellers, I identify a large number of similar but previously unnoticed illicit products (UIPs) that are currently sold online. For each illicit product that was previously removed, I detect 16.91 UIPs. Of these, 84% remained on the market during the one-year period after the removal of the initial illicit product. Nonetheless, the total market value of these products decreased by up to 80% after enforcements. My findings suggest that enforcements against illicit products on e-commerce platforms encourage separating equilibria, in which illicit sellers have weaker incentives to pool with authentic producers than to be revealed as low-quality producers.

Keywords: E-commerce, intellectual property, illicit sales

JEL Classification: O30, L14, G15, K4.