How a luxury monopolist might benefit from the aspirational utility effect of counterfeiting?
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Thanks to an intertemporal analytical model, we incorporate aspirational consumers in Veblen markets for luxury fashion items. We show how a luxury monopolist can increase its profits thanks to the presence of counterfeit products. The genuine producer profit is shaped by two opposite effects: (1) a positive aspirational effect resulting from a sales increase due to the aspirational consumers who seek to imitate the lifestyle of snob consumers (2) a negative snob effect, resulting from a sales decrease due to the reduction of consumption by some snob consumers. We identify the conditions under which the overall effect generated by counterfeiting can increase the genuine firm profit. These conditions imply the existence of large aspirational effects and high additional utility gain associated with buying an original product instead of obtaining a counterfeit product.
KeywordsAspirational effect Counterfeiting Luxury Snob
JEL ClassificationsD21 D23 D42
We are very grateful for the helpful comments and suggestions of Jonathan Barnett from the Gould School of Law at the University of Southern California on earlier versions of this paper. In addition, we are grateful to the anonymous referees and the editor for many constructive comments. The usual caveat applies.
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