How a luxury monopolist might benefit from the aspirational utility effect of counterfeiting?

Abstract

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

Paradox and market renewal

“…How can luxury companies then manage this complex interplay of meanings? Many of the studies we draw on state that only if luxury companies are able to provide superior quality in comparison to the copied substitutes will they be able to reap the benefits of this phenomenon (Bekir et al , 2013; De Castro et al , 2008; Romani et al , 2012). Interestingly, this is by no means always the case, as the quality of counterfeit offerings can sometimes exceed the offerings of genuine luxury brand offerings (Hilton et al , 2004).…”

“…Table two summarizes how counterfeits can affect the diffusion of luxury and simultaneously benefit luxury producers. Barnett, 2005Bekir et al, 2013Gistri et al, 2009Penz and Stöttinger, 2012Shultz and Saporito, 1996 Counterfeit products can create lock-in to luxury brands and convert their users into consumers of authentic luxuries Enables conversion of counterfeit consumers to authentic luxury consumers…”

“…Gistri et al , 2009). This type of consumption phenomena has generally been labeled as the aspiration effect (Barnett, 2005; Bekir et al , 2013; Shultz and Saporito, 1996). As already noted by Veblen (1899/1994), aspirational non-elite consumers tend to imitate elite consumers.…”

“…The aspiration effect can also create lock-in to certain luxury brands (Bian et al , 2016), and it has the propensity to convert counterfeit consumers to consume genuine luxury offerings (Bekir et al , 2013; Shultz and Saporito, 1996). For instance, Gistri et al (2009) show that counterfeit consumers spend substantial time in interacting with the genuine goods to emulate their consumption as closely as possible.…”

Consumer behavior and counterfeit luxury brands

“…Although there is a few number of studies that support the idea that counterfeits could benefit the original brands (e.g. Bekir, El Harbi, & Grolleau, 2013;Romani, Gistri, & Pace, 2012), most of the studies regarding counterfeiting suggest that it has very harmful social, economic and security effects. More specifically, according to the International AntiCounterfeiting Coalition (IACC) counterfeit goods are usually made of cheap and dangerous components that put the health and safety of consumers at risk.…”