10/23/2007

Insourcing Piracy

Seizures of counterfeit clothing imports in the US is up 67%. This article here talks about how clothing companies that import these 'knock-off's' have found a way around being caught. They will import them as unbranded apparel, then sew the brands on the clothes here in the states.

This is an example of a few economic principles, but the one I want to focus on is government's role in the free economy. Normally, I like to let the market run on its own without government involvement, but in this case, the free market would behave self-interestedly enough that it would be unfair and government involvement is needed.

Left alone, counterfeits of well branded products would produce and sell as many of a popular product as possible. This would inundate the market and drive the price of the true product down. The true producers would be unmotivated to produce since there is no profit in the business, and society would be at a loss because it is not enhanced by the products and innovations that would have come.

Government is needed to protect property rights, including intellectual property rights like patents and trademarks. This protection gives businesses a safe environment to peddle their wares and make a profit. Now the exclusivity of their product raises the price, but the availability of substitutes helps keep the price at a competitive level.

7 comments:

Timothy said...

Even though I think the Government does a bad job at most things it does, I have to agree with Logan that we do need the Government to protect us in this way.

I think it gives the public an incentive to be creative and to do things well that will bring brand loyalty. Then I think the Government needs to step back and let the market do its work.

Dr. Tufte said...

-1 on Timothy for capitalization errors.

I think what we are seeing here is laziness (and cost saving) on the part of the government.

The government is trying to intercept pirated items at one location - the border. This is sensible, but the response of actors in a free market will be to pirate after that point.

I'm speculating, but the problem with something like this is not that the government is involved, but that is isn't very nimble.

Matthew said...

Dr Tufte said, “I think what we are seeing here is laziness (and cost saving) on the part of the government.” It's interesting that it seems like the government is always eager to set more rules and regulations, but yet, they aren't too eager to follow up on the enforcement of them. A great thing about America has always been its protection of patents and products. I believe this is necessary to encourage people to innovate and create business.

Gavin said...

Extra Credit - Dr. Tufte
If the goverment wants to be more nimble when dealing with piracy, then they will have to be willing to pay the added expense. It is relatively inexpensive to regulate shipping points because large quantities of goods are in a centralized location.

William said...

Dr. Tufte,
I think too often we point the finger at the government and expect them to do everything for us. I think that protecting our patents are important, however I do not think that we need to have more regulation in this area. People will always get away with copying ideas, but the majority of people can tell the difference between a fake and a real brand name item. In major cities all over and even in Cedar City I have seen knock off purses which I think is fine. When you buy it you know it really isn't a Channel purse that you are buying. I personally think that the government can focus their attention on more important issues than someone in Cedar selling knock offs.

Trinity said...

Dr. Tufte- That is a good point. The government is far to slow and sluggish when it comes to regulating an industry such as fashion. The example reminds me of the patents drug companies have. Patent protection is critical for R&D and the invention of new drugs. Perhaps this is the case with fasion too.

Dr. Tufte said...

-1 on William for a spelling error.

Gavin: good point.