Why Branded Firm May Benefit from Counterfeit Competition

Yucheng Ding
2014 Social Science Research Network  
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 high future price in period 2, alleviating the classic time-inconsistency problem under durable good monopoly. This can increase the branded firm's profit by encouraging consumer purchase without delay, despite the revenue loss to the
more » ... s 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
doi:10.2139/ssrn.2380927 fatcat:fcsovi75lfewrfi44kdzypql4i