Journal of Industry, Competition and Trade

, Volume 15, Issue 4, pp 337–350 | Cite as

Counterfeiting and Negative Consumption Externalities – A Closer Look



We extend the work of Grossman and Shapiro (J Econ 103:79–100, 1988) on consumption externalities in prestige goods markets, and model a general aversion towards large levels of output interacting with an aversion towards copies in particular. These externalities play the role of protecting the market share of the producer of originals. We show that the well-established result under positive network externalities, that piracy is an equilibrium, extends to the case of negative consumption externalities. When externalities are pronounced enforcement should be strict, while in markets subject to moderate externalities there are no strong arguments in favor of a strict policy.


Consumption externalities Counterfeiting Product differentiation 

JEL Classification

L13 D62 



We are grateful to two anonymous referees for constructive comments and suggestions.


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Copyright information

© Springer Science+Business Media New York 2015

Authors and Affiliations

  1. 1.Department of EconomicsStockholm UniversityStockholmSweden

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