NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Counterfeit-Product Trade

Gene M. Grossman, Carl Shapiro

NBER Working Paper No. 1876 (Also Reprint No. r1086)
Issued in March 1986
NBER Program(s):   ITI   IFM

We 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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Document Object Identifier (DOI): 10.3386/w1876

Published: American Economic Review, Vol. 78, No. 1, March 1988, pp. 59-75. citation courtesy of

 
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