The impacts of gray products and counterfeits in the luxury industry

Abstract

With the rapid development of e-commerce, both gray products and counterfeit products are particularly serious in the luxury industry. This paper develops an analytical framework to investigate the interaction among the gray market, the counterfeit market and the authorised market, and examines how luxury manufacturers should manage unfair competition from gray products and/or counterfeit products. First, regardless of the existence of counterfeit products, the manufacturer can benefit from gray products when the status utility is moderate. Second, counterfeit products may benefit the manufacturer, depending on the availability of gray products and the physical resemblance of counterfeit products. Third, gray product may benefit the counterfeiter while counterfeit product always harms the gray marketer. Finally, we reveal that gray products can help luxury manufacturers fight against counterfeit products. In particular, gray products can reduce the demand for counterfeit products and even drive counterfeit products out of the market when the physical resemblance of counterfeit products is sufficiently low. Our findings provide several new managerial insights for luxury manufacturers and gray marketers.