Converting Counterfeiters in Emerging Markets to Authorized Suppliers: A New Anti-counterfeiting Measure

Posted: 28 Feb 2022 Last revised: 25 May 2023

See all articles by Liling Lu

Liling Lu

Singapore Management University - Lee Kong Chian School of Business

Xin Fang

Singapore Management University - Lee Kong Chian School of Business

Sarah Yini Gao

Singapore Management University - Lee Kong Chian School of Business

Burak Kazaz

Syracuse University - Whitman School of Management

Date Written: May 25, 2023

Abstract

With more products being infringed by counterfeits, anti-counterfeiting measures, such as law enforcement and consumer education, have commonly been adopted in emerging markets. In recent years, “super fakes,” i.e., counterfeits of high quality, have become popular. Super fake manufacturers’ capability to produce high-quality products inspires a new anti-counterfeiting measure: converting counterfeiters to authorized suppliers. To study the effectiveness of this anticounterfeiting measure, our paper employs a game-theoretic model to examine the interactions between a brand-name firm with its home supplier, and a counterfeiter who produces high-quality counterfeits and can be potentially converted to an authorized overseas supplier. Our results show that when the difference in production costs between the two suppliers and the discount factor of using the overseas supplier are low, the brand-name firm may not have the incentive to convert the counterfeiter due to limited cost savings and a significant brand value loss. Otherwise, the brand-name firm has the incentive to convert the counterfeiter through either dual sourcing or single sourcing. However, the brand-name firm may still fail to do so when the wholesale price required for the conversion is too high because of a large overseas market size, a low penalty from law enforcement, or a high perceived quality of the counterfeit. We demonstrate that it is easier for the brand-name firm to combat counterfeiting through conversion than by driving the counterfeiter out of the market. We also examine the impact of this anti-counterfeiting measure on consumer and social surplus, and find that it may hurt consumer surplus and does not always improve social surplus.

Keywords: anti-counterfeiting; super fakes; global operations management; game theory

Suggested Citation

Lu, Liling and Fang, Xin and Gao, Sarah Yini and Kazaz, Burak, Converting Counterfeiters in Emerging Markets to Authorized Suppliers: A New Anti-counterfeiting Measure (May 25, 2023). Available at SSRN: https://ssrn.com/abstract=3996020

Liling Lu (Contact Author)

Singapore Management University - Lee Kong Chian School of Business ( email )

469 Bukit Timah Road
Singapore 912409
Singapore

Xin Fang

Singapore Management University - Lee Kong Chian School of Business ( email )

469 Bukit Timah Road
Singapore 912409
Singapore

Sarah Yini Gao

Singapore Management University - Lee Kong Chian School of Business ( email )

469 Bukit Timah Road
Singapore 912409
Singapore

Burak Kazaz

Syracuse University - Whitman School of Management ( email )

721 University Avenue
Syracuse, NY 13244
United States
(315) 443-7381 (Phone)
(315) 442-1461 (Fax)

HOME PAGE: http://https://bkazaz.expressions.syr.edu/

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