Robert Somogyi, Budapest University of Technology and Economics

"Deceptive Counterfeits and Consumer Protection"

Abstract

Deceptive counterfeits—fake products that consumers purchase unintentionally—are an increasing concern in e-commerce, posing financial and health risks. Particularly dangerous examples include counterfeit pharmaceuticals, fertilizers, electronics, and automotive parts. We develop a model in which some consumers mistakenly believe fake products are genuine. Our first contribution is to introduce a framework where some consumers are harmed by fakes directly through unintentional purchases—the first model to directly analyze how deceptive counterfeits harm consumers. The extent of unintentional purchases depends on the degree of competition between counterfeit products and the authentic brand. We analyze two enforcement
strategies: prosecuting counterfeit sellers and providing authenticity aids. The effectiveness of these strategies depends on whether the brand competes for deceivable consumers. When a brand competes in this segment, both the brand and counterfeits offer the same price range. In such cases, authenticity aids can backfire—by shifting equilibrium prices, they may increase counterfeit purchases. Conversely, when a brand withdraws from competing for deceivable consumers—as in traditional counterfeit markets where fakes are more easily recognized—authenticity aids reduce counterfeit purchases. These findings highlight the importance of distinguishing between deceptive and non-deceptive counterfeits when designing effective anti- counterfeit policies. Finally, we study the incentives of a platform to fight deceptive fakes, arguing that more established platforms may have stronger incentives to protect consumers.

(with Johannes Johnen and Gianmarco Luu)

Contact person: Egor Starkov