Advertisement

European Journal of Law and Economics

, Volume 33, Issue 3, pp 645–661 | Cite as

The strategy of raising counterfeiters’ costs in luxury markets

  • Insaf Bekir
  • Sana El Harbi
  • Gilles GrolleauEmail author
Article

Abstract

A luxury monopolist can prefer increasing its net profits by raising the costs of a competitive fringe of counterfeiters compared to a situation where it can completely drive them out of the market. The mechanism underpinning this outcome results from the fact that counterfeiters can generate net revenues for the luxury monopolist because (1) sanctions imposed to counterfeiters are shaped and pocketed by the luxury monopolist under cover of deterrence (2) costs and profit loss due to counterfeiters and incurred by the luxury monopolist can be less than what is usually assumed. Moreover, the presence of counterfeits can be considered as promotional devices that signal the true luxury cachet, increases the snob value of the counterfeited brand and rewards high-end designers in a non-monetary way. In short, counterfeiting is like the light of the sun: it can burn the genuine firm but living without can be more harmful for the genuine firm.

Keywords

Counterfeiting Fines Intellectual property rights Raising rivals’ costs 

JEL Classifications

D21 D23 D42 

Notes

Acknowledgments

We are very grateful to Jen-Te Yao, Lucie Bottega and the anonymous referees for detailed comments and suggestions, which have substantially improved this manuscript.

References

  1. Teen Vogue. (2009). Marc Jacobs’ coveted clothes, cutting-edge ads, and celeb-packed front rows ensure this style pioneer’s hold on the throne. http://www.teenvogue.com/industry/2009/10/teen-vogue-handbook-marc-jacobs.
  2. Allérès, D. (1998). La propriété intellectuelle dans l’univers du luxe. Réseaux, 16(88–89), 139–150.CrossRefGoogle Scholar
  3. Anonymous. (2004). Psst. Wanna Real Rolex? The Economist, 24, 55–56.Google Scholar
  4. Arrow, K. J. (1962). Economic welfare and the allocation of resources for invention. In R. Nelson (Ed.), The rate and direction of inventive activity (pp. 609–625). Princeton, NJ: Princeton University Press.Google Scholar
  5. Barnett, J. M. (2005). Shopping for Gucci on Canal Street: Reflections on status consumption intellectual property and the incentive thesis. Virginia Law Review, 91(6), 1381–1423.Google Scholar
  6. Barnett, J., El Harbi, S., & Grolleau, G. (forthcoming). The fashion lottery: Cooperative innovation in stochastic markets. Journal of Legal Studies.Google Scholar
  7. Becker, G. S. (1968). Crime and punishment: An economic approach. Journal of Political Economy, 76(2), 169–217.CrossRefGoogle Scholar
  8. Calixte, L. (2007). Nokia pare vertu de toutes les qualités. Challenges. March 22, http://www.challenges.fr/magazine/strategie/0072.7966/, Accessed on Jan 28, 2009.
  9. Centre d’études internationales de la propriété industrielle (CEIPI). (2004). Impacts de la contrefaçon et de la piraterie en Europe, Rapport final à la Direction générale Justice et Affaires intérieures de la Commission européenne, Strasbourg.Google Scholar
  10. Chaves, B., & Deroian, F. (2004). A note on strategic piracy in the economics of software: An explanation by learning costs. University of Paris X, FORUM, Mimeo. http://www.brousseau.info/semnum/pdf/2004-01-26_BC-FD.pdf.
  11. Conner, K. R., & Rumelt, R. P. (1991). Software piracy: An analysis of protection strategies. Management Science, 37(2), 125–139.CrossRefGoogle Scholar
  12. Corneo, G., & Jeanne, O. (1997). Conspicuous consumption, snobbism and conformism. Journal of Public Economics, 66, 55–71.CrossRefGoogle Scholar
  13. Crumley, B. (2008). France fines eBay over Fake Vuitton. Time. Jun 30, http://www.time.com/time/business/article/0,8599,1819097,00.html.
  14. De Castro, J. O., Balkin, D. B., & Shepherd, D. A. (2008). Can entrepreneurial firms benefit from product piracy? Journal of Business Venturing, 23, 75–90.CrossRefGoogle Scholar
  15. Feldman, Y., & Teichman, D. (2008). Are all legal dollars created equal? Northwestern University Law Review, 102(1), 223–262.Google Scholar
  16. Gneezy, U., & Rustichini, A. (2000). A fine is a price. Journal of Legal Studies, 29(1), 1–17.CrossRefGoogle Scholar
  17. Grall, J. C., & Laur-Pouédras, E. (2008). Lutte contre la contrefaçon: Un arsenal juridique renforcée. Revue des Marques, 62, 82–84.Google Scholar
  18. Grolleau, G., & El Harbi, S. (2008). Profiting from being pirated by ‘pirating’ the pirates. Kyklos, 61, 385–390.CrossRefGoogle Scholar
  19. Grossman, G. M., & Shapiro, C. (1988). Foreign counterfeiting of status goods. Quarterly Journal of Economics, 103(1), 79–100.CrossRefGoogle Scholar
  20. Jenkins, H. (2004). When piracy becomes promotion. Technology Review, Aug 10, http://www.technologyreview.com/Biotech/13722/?a=f.
  21. Kaplow, L. (1992). The optimal probability and magnitude of fines for acts that definitely are undesirable. International Review of Law and Economics, 12(1), 3–11.CrossRefGoogle Scholar
  22. Laurenson. (2005). France awash with fashion fakes. BBC News, Paris. March 24, http://www.news.bbc.co.uk/2/hi/europe/4378537.stm, Accessed on Jan 14, 2010.
  23. Lee, S. H., & Yoo, B. (2005). Do counterfeits promote genuine products?, Zarb School of Business, Hofstra University, Hempstead, NY, working paper #7.Google Scholar
  24. Levine, M. (2002). The $19,450 phone. The New York Times. http://www.nytimes.com/2002/12/01/magazine/the-19450-phone.html?pagewanted=1, Accessed on Jan 14, 2010.
  25. Liebowitz, S. (2005). Economists’ Topsy-turvy view of piracy. Review of Economic Research on Copyright Issues, 2(1), 5–17.Google Scholar
  26. Poddar, S. (2005). Why software piracy rates differ, a theoretical analysis. National University of Singapore, working paper # 0515, http://www.fas.nus.edu.sg/ecs/pub/wp/wp0515.pdf.
  27. Polinsky, A. M., & Shavell, S. (1979). The optimal tradeoff between the probability and magnitude of fines. American Economic Review, 69, 880–891.Google Scholar
  28. Raustiala, K., & Sprigman, C. (2006). The piracy paradox: Innovation and intellectual property in fashion design. Virginia Law Review, 92(8), 1687–1777.Google Scholar
  29. Ritson, M. (2007). Fakes can genuinely aid luxury brands. Marketing. July 25, http://www.marketingmagazine.co.uk/news/673098/Fakes-genuinely-aid-luxury-brands/, Accessed on Feb 22, 2010.
  30. Salop, S. C., & Scheffman, D. T. (1983). Raising rivals’ costs. American Economic Review, 73, 267–271.Google Scholar
  31. Shavell, S. (1985). Criminal law and the optimal use of nonmonetary sanctions as a deterrent. Columbia Law Review, 85, 1232–1262.CrossRefGoogle Scholar
  32. Slive, J., & Bernhardt, D. (1998). Pirated for profit. Canadian Journal of Economics, 31(4), 886–899.CrossRefGoogle Scholar
  33. Takeyama, L. (1997). The intertemporal consequences of unauthorized reproduction of intellectual property. Journal of Law and Economics, 40, 511–522.CrossRefGoogle Scholar
  34. Veblen, T. (1899). The theory of the leisure class: An economic study of institutions. London: Unwin Books. (1994).Google Scholar
  35. Verma, S. (1996). TRIPs—Development and transfer of technology. International Review of Industrial Property and Copyright Law, 27(3), 331–364.Google Scholar
  36. Whitwell, S. (2006). Brand piracy: Faking it can be good. Brand Strategy, http://www.intangiblebusiness.com/Brand-Services/Marketing-Services/News/Brand-piracy-faking-it-can-be-good~290.html, Accessed on Nov 5, 2007.
  37. Yao, J. T. (2005). How a luxury monopolist might benefit from a stringent counterfeit monitoring regime. International Journal of Business and Economics, 4(3), 177–192.Google Scholar

Copyright information

© Springer Science+Business Media, LLC 2010

Authors and Affiliations

  1. 1.Université de SousseSousseTunisie
  2. 2.Montpellier Supagro and LAMETA, UMR 1135Montpellier Cedex 1France

Personalised recommendations