Taipei: Department of Industrial Economics, Tamkang University
This paper establishes 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 fmd 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 fmd the following interesting results. First, with government enforcement on a particular counterfeit, the consumers who iliow 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.
2009 International Conference on Trade, Industrial and Regional Economics, 35pages