Equilibrium anti-counterfeiting strategies with deceptive counterfeits: Proactive, reactive, or instantaneous?

Abstract

This papers studies anti-counterfeiting strategies with deceptive counterfeits. We develop a model to study the interactive anti-counterfeiting and counterfeit hiding decisions between the genuine brand company and a deceptive counterfeiter. Facing deceptive counterfeits, the genuine brand company can choose to adopt a proactive, instantaneous, or reactive anti-counterfeit strategy. We first examine these strategies and then characterize the equilibrium outcomes. Surprisingly, we reveal that the genuine brand company does not necessarily benefit from heavier penalty and the counterfeiter is not necessarily worse off with more costly counterfeit hiding efforts. Interestingly, the counterfeiter’s hiding effort decreases with heavier penalty when the genuine brand company’s anti-counterfeit and the counterfeiter’s hiding decisions are sufficiently efficient. Besides, higher levels of counterfeit imitation or penetration can either hurt or benefit the genuine brand company. Whether the counterfeiter is better off with deeper counterfeit penetration depends on the status quo. Furthermore, the counterfeiter exerts fewer counterfeit hiding efforts when the genuine brand company exerts more anti-counterfeit efforts, while the anti-counterfeit effort increases with the counterfeit hiding effort, regardless of the anti-counterfeiting strategies. Finally, for decision makers and policy makers, we discuss the implications for anti-counterfeiting strategies in practice.