Combating Strategic Counterfeiters in Licit and Illicit Supply Chains

Today counterfeit products are being produced and consumed in all economies. While clothing and fashion accessories dominated counterfeit supply in the past, today's counterfeit goods are in a wide range of simple to sophisticated products including items that have an impact on personal health and safety. When a counterfeiter sells his goods as low-price substitutes for brand-name products, i.e., as non-deceptive counterfeits, he tends to distribute the goods through illicit supply chains. Conversely, a counterfeiter must break into licit supply chains of brand-name products when he intends to deceive consumers into believing that they purchase genuine goods, i.e., to sell as deceptive counterfeits. Using a normative model of counterfeiting, we show how a counterfeiter's decisions of his price, quality and type depend on product characteristics and counterfeit costs and risks. Understanding such decisions of a counterfeiter is important because they have a signi…ficant impact on the effectiveness of anti-counterfeiting strategies of industry and governments. Although it is ideal that strategies which are effective against counterfeiting also benefi…t consumers, we …find that this is not always the case. Therefore, policy-makers should identify the characteristics of potential counterfeiters and devise anti-counterfeiting strategies accordingly, while minimizing negative consequences to consumers.