Counterfeit-Product Trade

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, raLionally 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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