The Impact of Online Anti-Counterfeiting on Channel Structure and Pricing Decisions

Abstract

Counterfeiting is an important challenge in maintaining the security and sustainability of supply chains. This paper examines a supply chain consisting of a luxury goods manufacturer (and a retailer) in the presence of counterfeit goods. Inspired by the reality that both manufacturers and retailers have incentives to implement anti-counterfeiting, this paper combines the psychological impact of anti-counterfeiting efforts on consumers and discusses the impact of anti-counterfeiting efforts on pricing and profits. We find that: (1) anti-counterfeiting has a positive impact on the selling price of brand products and the firms’ profits. However, the impact on wholesale prices varies depending on who implements the anti-counterfeiting strategy. (2) Only when the quality of brand products is higher than the threshold, is the firm willing to input anti-counterfeiting efforts. Manufacturers in a reselling structure are more motivated to fight counterfeits. (3) Implementing anti-counterfeiting in a direct selling structure is the most effective strategy for manufacturers. Under a reselling structure, it is more beneficial for manufacturers to have the retailer input anti-counterfeiting efforts. Our study provides insights into the reasons why some manufacturers establish internal anti-counterfeiting teams under the direct selling structure, while others incentivize retailers to invest in anti-counterfeiting.