A look into the counterfeit business of fashion

Inspired by the phenomenon of counterfeit businesses across the market, Sauder professor Yi Qian has been researching the business of knock-offs in the fashion and pharmaceutical industry in China and what it means for consumers, authentic firms, counterfeiters and also the government.

Her paper "Untangling Searchable and Experiential Quality Responses to Counterfeits” focuses on how firms and brands react to counterfeiting and what are the optimal or effective enforcement strategies against knockoffs.

Although this paper is technical, the fieldwork in China showed that when there are too many knockoffs in the market, there are incentives for the authentic brand to innovate and self-differentiate or take any other means to enforce their trademarks.

"What we observe is that the market can serve as an invisible hand in self regulating these illegal market behaviours," said Qian. "As such I feel that it is efficient for the government to work with private firms."

Her paper described how it would be socially wasteful for pharmaceutical firms to invest in appearance to stand out from generic brands. Nevertheless, she found the fashion industry to be more vulnerable as generic brands for medicine are still genuine, approved by the FDA and legal, unlike counterfeit, which, by the definition alone, is “the intention to deceive.”

“With medicines it is hard,” she said. “Sometimes you could develop a drug resistance by the bacteria if you use an inferior or lower dose counterfeit drug.”

New to Vancouver, Qian is yet to notice any significant knockoff brand culture in the city. She acknowledged, however, the important role counterfeiting can play in a business society.

I’ve seen in China that some of the counterfeiters are, in fact, local entrepreneurs. They don’t have proper access to funding so they have to start by producing some knockoffs to accumulate wealth so they can later change to innovation," she said.

She also recognized that there are a huge number of downsides to the business -- largely the illegality of their actions and often sub-standard quality of products. "It is a very fine line to walk," she said. "I personally don’t think there’s anything wrong with finding cheaper products, knowing that they are of sub-quality and just to satisfy some glory. But on the other hand, we also don’t want to encourage illegal behaviour. So, from a moral point of view, we definitely want to reduce counterfeiting as much as possible.”

Her advice for students is to be conscious of what they are buying and where the money is going afterwards, especially if it is a potentially dangerous product. There have been cases where people bought counterfeit batteries for cellphones which explode. On the other hand, if it is a cheap quality keychain with pretty patterns on it, why not?