counterfeit products. They develop a two—country, equilibrium model of counterfeiting, in which foreign firms produce
legitimate, low—quality ( "generic") merchandise as well as forgeries of brand—name domestic products. The authors use their model to study the effects of counterfeiting on domestic
consumers, domestic trademark owners, and on foreigners. They also provide a welfare analysis of border inspection policy and of policy regarding the disposition of counterfeit goods that are confiscated at the border.
Despite the importance of counterfeiting (which the authors
document), the economics literature contains no models of
counterfeit_product trade. Grossman and Shapiro partially
correct for this omission by analyzing deceptive counterfeiting, i.e., the sale of fakes that consumers cannot easily distinguish from genuine items. This type of counterfeiting must be analyzed as a problem in the economics of information. Counterfeiting thus involves the twin problems of imperfect information (by consumers) and imperfect property rights (for trademark owners). In the presence of counterfeiting,...