Fakes in fashion: Interview with Prof Yi Qian

Yi recently covered a study by assistant professor Yi Qian of the University of British Columbia (UBC) Sauder School of Business whch concluded that the entrance of counterfeits into the footwear industry during a 12-year period caused authentic brands to "up their design game." 

Counterfeit entry, in some parts of the market, caused authentic brands to improve quality, according to the study. Our exclusive interview with Prof Qian follows.

MM: In a UBC news release we read: "Qian makes it clear she doesn’t want to say that counterfeiting is a good thing; rather, she wants to improve how enforcement plays out." But in the population studied – footwear – it does seem that counterfeiting is pictured as in some ways playing a good role, at least for high-end products. Could you comment?

YQ: Thanks for the clarification question. It sometimes can be counterintuitive that counterfeits are not always bad. Our study outlines certain scenarios and parameter ranges under which having the counterfeits in the market could actually stimulate authentic producers to innovate for their consumers as well as meet the demand of the low-income consumers who couldn’t afford the real thing in the first place. In those cases, consumer surplus in fact increases. However, such innovations on the appearances (searchable dimensions of quality) are not as good for all industries as for fashion where part of consumer utility derives from the outer look of a product. For instance, we note in our study that innovations for unique shape and colour of drugs in the face of counterfeiting are socially-wasteful.  Our study has also derived theoretical predictions under other market conditions where pervasive counterfeiting with low production cost could drive the authentic products out of the market, in analogous ways to the “lemons problem” in classical economics theory.  We therefore prescribe different managerial and policy strategies in the face of counterfeiting depending on the various market conditions.

MM: You describe a part of the footwear market as "self-regulating," Thanks to the market's invisible hand. [Ed: the invisible hand is a metaphor used by economist Adam Smith to describe unintended social benefits resulting from individual actions]  But one also hears the counter-argument that large companies in the fashion industry also react by defending their trademarks and IP vigorously. Therefore, is there not also a "visible hand" protecting the IP of, at least, large companies, (those which have the resources to do so)?

YQ: Absolutely. However, we observe in reality that IP enforcement is seldom perfect, even in wealthy nations let alone emerging markets where many multinational corporations are operating these days. It is therefore important to study effective strategies against counterfeits under imperfect IP regimes. To our surprise and comfort, free market serves as an ‘invisible hand’ in ways beyond what Adam Smith had imagined.

MM: Would you like to comment on the assertion that the designers who suffer from copying are the little guys – those whose designs are copied, while their trademarks are not?

YQ: There might have been some misunderstanding of my study results. You seem to be referring to my other study Counterfeiters: Foes or Friends (published in the journal Management Science) where I examined the heterogeneous effects of counterfeiting on the sales of various quality tiers. What I found in that study was that the sales of the high-end authentic products increased after the infringement of counterfeits while that of the low-end ones declined, and these are different quality tiers of the same brand because I have controlled for the brand-fixed effects in the analyses. So we should interpret as counterfeiting boosted sales of high-end Nike shoes (just to name a hypothetical brand) while stealing sales of low-end Nike shoes.

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