Counterfeit Goods and Income Inequality, Issues 2001-2013
This paper examines the effect of counterfeit goods in a world where consumers are differentiated by level of income and innovation is quality enhancing. Counterfeit goods are defined as products with the same characteristics as “originals”, but of lower quality. the effect of imitation on firms’ profits and consumer welfare depends on the distribution of income within the country. In particular, the greater the level of income inequality the larger the increase in consumer welfare due to the imitation, and the smaller the effect on profits of the state-of-the-art firm.
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allow market share Assume Bertrand competition burden of quality choose to innovate Consumer Preferences consumer surplus counterfeit firm counterfeit good increases degree of income developing countries dF(y distribution of income dr dr drdfi economy effect on price effect on profits entails falls on fixed finite number firm's market share fixed cost Furthermore Given differing taste greater the degree greater the welfare higher quality income distribution income inequality inferior innovating firms innovative activity introduction of counterfeit level of IPR levels of income literature lognormal distribution lower price lower quality Magnitude effects marginal cost market structure Markets for vertically monopoly power monopoly profit number of innovating number of qualities Pareto distribution particular patent race payoff price and profit price charged quality improvement falls richer consumers Shaked and Sutton share to adjust state-of state-of-the-art firm sells state-of-the-art firm's market strong IPR protection the-art uniform distribution variety vertical product differentiation vertically differentiated products zero