Counterfeit-product TradeWe 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. |
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announced quality Author Title Date blue-jeans border inspection policy brand-name products Bureau of Economic Carl Shapiro competition Consumers infer counterfeit-product trade credibility constraint David Card disposition of counterfeit dw/db earn Economic Research entry by counterfeiters entry by home entry is free equilibrium quality expected surplus fakes fixed number foreign country foreign firms foreign producers free entry global welfare Grossman high-quality home consumers home firms Home producers home welfare home-country imperfect information incentive increase label legitimate firm limit-pricing equilibrium low-quality jeans marginal cost market share National Bureau no-counterfeiting equilibrium non-quality-conscious Number Author Title number of home numeraire optimal parameter Potential Counterfeiting presence of counterfeiters price and quality property rights purchase q Quality Price quality â quality-adjustment effect quality-conscious consumers raise welfare rational expectations reputations second-best sell share of counterfeits submarket Tariff terms of trade terms-of-trade tighter border trade in counterfeit trademark owners world welfare zero-profit ZP curve