Journal
MANAGEMENT SCIENCE
Volume 60, Issue 10, Pages 2381-2400Publisher
INFORMS
DOI: 10.1287/mnsc.2014.1932
Keywords
counterfeit; intellectual property rights; China; fashion
Funding
- Kauffman Foundation
- National Science Foundation of China [70972142, 71172217]
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A key concern about counterfeits and weak intellectual property protection is that they may hamper innovation by displacing legitimate sales. This paper combines a natural policy experiment with randomized lab experiments to estimate the heterogeneous impacts of counterfeiting on the sales and consumer purchase intent related to branded products of various quality levels. I collect new product-line-level panel data (1993-2004) on Chinese shoe companies. I identify heterogeneous effects of counterfeit entry on sales of authentic products of three quality tiers, finding that counterfeits have both advertising effects for a brand and substitution effects for authentic products, additionally the effects linger for some years. The advertising effect dominates the substitution effect for high-end authentic product sales, and the substitution effect outweighs the advertising effect for low-end product sales. The positive effect of counterfeits is most pronounced for high-fashion products (such as women's high-leg boots and dress shoes), shoes tailored to young customers, and high-end products of brands not yet well-known at the time of counterfeiter entry.
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