This dissertation discusses the issues on counterfeiting. I discuss the relationships between counterfeiting and enforcement, counterfeiting and tariff and counterfeiting and consumer’s decisions, respectively. I find the following results.
First, I use a vertical product differentiation model to explore the impact of the government’s enforcement on counterfeiting and social welfare. I find that as counterfeiting may occur, sales of the original product could either increase or decrease. The welfare effects of government enforcement are shown as follows. First, a strict enforcement on counterfeiting by government may either increase or decrease welfare. Second, when counterfeiting emerges, welfare under a stricter enforcement is not necessarily larger than that without enforcement. Last, a strict enough enforcement can still improve welfare even if there is a relatively high enforcement cost.
Second, I also introduce counterfeiting into a vertical difference model and concern about the relationship between tariff policy which the home government takes for the original firm and social welfare. I find the following results. First, regardless of the network externality of the product, the optimal tariff will raises as the cost of the foreign firm increases when counterfeiting firms may emerge. Second, when the counterfeiting occurs and network externality of the product is large enough, the optimal tariff will also increase with the cost of the foreign firm. Last, if the foreign firm asks government to take law enforcement, the import tariff of the original will increase instead.
Last, I establish a duopoly model which considers the horizontal differentiation and vertical differentiation simultaneously to investigate the changes in consumer’s purchasing behavior in presence of counterfeiting. We find that as the price of one brand of a genuine product decreases due to the emergence of its counterfeit, the consumers who have a high loyalty to the brand of product could instead purchase the counterfeiting one, but consumers who do not have a strong preference on the brand of product could show their interests in the genuine one. As far as government enforcement is concerned, we find the following interesting results. First, with government enforcement on a particular counterfeit, the consumers who show no strong preference on a particular brand and also originally purchased the counterfeit could instead go to purchase its genuine product or purchase nothing but not possibly continue to purchase the counterfeit. Second, for those consumers who originally purchased a genuine product, a more rigorous government monitoring rate on its counterfeit could lead to three more possibilities: purchase the genuine product of the other brand, purchase nothing or, quite interestingly, purchase the counterfeit of the other brand of genuine product.
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