Nowadays, the existence of counterfeits has been a severe problem of the entire market. The counterfeits highly resemble the authentic products and have huge price advantages. They are unfair competitors in the market and do harm to the society in many ways. This work intends to investigate the product line strategies for the brand-name firm to reduce the effects of unfair competition. We establish a stylized model, and study the optimization problem of the brand-name firm. We analyze the firm’s optimal pricing and quality strategies when facing one or more counterfeit products. Specifically, we study the effectiveness of launching a new product to combat the counterfeits, which is controversial in both the literature and the reality. We find that launching a new product does no...[ Read more ]

Nowadays, the existence of counterfeits has been a severe problem of the entire market. The counterfeits highly resemble the authentic products and have huge price advantages. They are unfair competitors in the market and do harm to the society in many ways. This work intends to investigate the product line strategies for the brand-name firm to reduce the effects of unfair competition. We establish a stylized model, and study the optimization problem of the brand-name firm. We analyze the firm’s optimal pricing and quality strategies when facing one or more counterfeit products. Specifically, we study the effectiveness of launching a new product to combat the counterfeits, which is controversial in both the literature and the reality. We find that launching a new product does not always benefit the firm, and it even hurts the firm’s profit heavily when the relative quality difference between the authentic products and counterfeits is small. In some cases, when the quality disparity is large, introducing a new low-end product can reduce the market share of the counterfeits, but can not wipe out any counterfeit completely if the firm is profit-oriented, due to the price advantage of the counterfeits. In addition, when facing multiple counterfeits, the firm should only compete with the highest quality counterfeit.