Turning counterfeiting into advantage: the case of a durable good monopolist

Abstract

This article argues that the presence of nondeceptive counterfeits may benefit the monopolist of genuine products in a durable good scenario. For a monopolist selling a durable good over time, the presence of counterfeits mitigates the monopolist’s incentives to lower the price in later periods because lower valuation consumers are more likely to purchase the counterfeit. While the counterfeit diminishes the demand for the genuine product, we show that, under some circumstances, the presence of counterfeits may raise the price and boost the monopolist’s profit.

Keywords:

• counterfeits
• durable good
• Coase conjecture
• monopolist

JEL Classification:

• L11
• L12

Acknowledgement

We have benefited from the discussions with Jyh-Chyi Gong. All remaining errors, if any, are our own.