Why Branded Firms May Benefit from Counterfeit Competition
نویسندگان
چکیده
A durable-good monopolist sells its branded product over two periods. In period 2, when there is entry of a counterfeiter, the branded firm may charge a high price to signal its quality. Counterfeit competition thus enables the branded firm to commit to a high price in period 2, alleviating the classic time-inconsistency problem under a durable-good monopoly. This can increase the branded firm’s profit by encouraging consumer purchase without delay, despite the revenue loss to the counterfeiter. Total welfare can also increase, because early purchase eliminates delay cost and consumers enjoy the good for both periods. JEL: D82, L11, L13
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