Discussion Paper Details

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Title: Counterfeit Product Trade

Author(s): Gene M. Grossman

Publication Date: April 1986

Keyword(s): Counterfeiting, Reputation and Trademarks

Programme Area(s): International Trade and Regional Economics

Abstract: 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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Bibliographic Reference

Grossman, G. 1986. 'Counterfeit Product Trade'. London, Centre for Economic Policy Research.