Counterfeiting Goods in China

China's counterfeit goods range from electronics to liquor; counterfeit goods have the brand but not the quality.  According to a recent article from ABC News, "Chinese counterfeiting now costs foreign firms an estimated $20 billion a year in lost profits."  It is quite apparent that the absence of copyright laws spurns from the communistic form of government and the view that what is perceived to be good is what is good for the majority rather than protecting individual rights.  Are there ways to protect the brand without instituting copyright laws?  Are there any societal benefits to counterfeit goods?  Do counterfeit goods provide benefits to the customer?  Practically speaking one would respond that yes there are benefits to the consumer as this must be the reason that the counterfeit goods are purchased.  As one analyzes the situation it is difficult to pin-point the benefit or benefits.   The following are a list of negative effects consumers face from purchasing counterfeit goods:  non-durable, poor quality goods, risk of exposure to toxic or contaminated materials, broken goods, goods that contain materials which are harmful to the environment or have caused harm to animals, deceptive advertising, and more.  Buyers face a huge risk since they do not fully know what they are buying.  Are there positive effects for the consumer?

1 comment:

Dave Tufte said...

Miz Ava: 94/100. I don't really think the 3rd sentence makes sense.

First off, it isn't at all clear that a counterfeit good would be lower quality. This is similar to the argument in other posts this Block that businesses (like Apple) are trying to lock in a long-term profit stream. If you're a counterfeiter, the way to do this is with a quality knock-off. After all, it's only the bad counterfeits that ever get noticed.

Beyond that though, this is a big problem. Many companies spend more money on creating the brand than they do on creating the product itself. I am not sure how to fix this though. Unfortunately, people tend to see this as an enforcement issue. It isn't. It's a mark-up issue. If you can mark-up over marginal cost, you'll be counterfeited, if you can't you won't be (this is why there are no Chinese knock-offs of, say, Fels Naphtha or 20 Mule Team Borax). Any use of enforcement mechanisms to maintain mark-ups is really trying to stop the bleeding after the injury has occurred. The real question is how to stop the injury in the first place? I suspect the only way to do this is to give the potential counterfeiters a bigger piece of the action. This is, essentially, what computer security companies do with hackers.

BTW: I'm dubious of the $20B in lost profits figure. If margins are say, 5%, that's a $1T loss of revenue each year. This is larger than the GDP of most countries. And, for the U.S., it's a bigger fraction of GDP than was lost in the Great Recession. So I'm thinking the true number needs to be smaller. Also, note that if margins were lower ... and they may very well be on many branded products, then the loss of revenue will be even larger and less likely.