The Fashion Lottery: Cooperative Innovation in Stochastic Markets

Abstract

The fashion market is an anomaly: innovation is vigorous, but original producers are substantially unprotected against imitation. We account for this anomaly through a cooperative innovation model in which producers prefer an incomplete property regime that permits some imitation to alternative regimes that permit no imitation or all imitation, independent of budget constraints. A property regime that permits positive but limited levels of imitation operates as a collective insurance mechanism that alleviates the risk of recoupment failure in a market characterized by demand uncertainty, long lead times, skewed returns, and rapid product obsolescence. This model is compatible with producers’ selective enforcement of intellectual property protections, privately administered quasi‐copyright schemes, and institutional mechanisms that facilitate seasonal coordination of design outcomes. This model potentially generalizes to certain other markets in which innovation persists despite substantial imitation.

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