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Author:

• Dr. Hubert PUN
  Assistant Professor
  Management Science Education
  Ivey Business School
  Western University

Abstract:

We consider a manufacturer that sells products to strategic (forward-looking) customers over two periods. After the end of the first period, a counterfeiter that is capable of producing a non-deceptive counterfeiting product decides whether or not to enter into the market. The manufacturer decides an investment in advertisement, and the retail prices are decided at each period. If the counterfeiter has all the necessary technology to duplicate the manufacturer's product, one might expect that the counterfeiter would make a product as good as possible, and the manufacturer would be worse off from the counterfeiter imitating a high resemblance product. Interestingly, we find that this insight does not hold. Moreover, the manufacturers frequently educate their customers with the buy-now mentality, so that the customers would buy at full price rather than waiting for the discount price, and the customers are less likely to wait for a counterfeiting product. However, we find that the manufacturer can also be worse off from the customers becoming more impatience. Lastly, the counterfeiter may be worse off from the customers anticipating the possibility of a counterfeiting product.