What Is in It for Me? The Fight against Counterfeits on Intermediary Platforms

Description

The continued digitization of society has given rise to a flourishing trend in onlinetransactions. Online intermediary platforms (such as Taobao, Ebay) connect millions ofmerchants with consumers for product sales. However, many counterfeit products arebeing traded in those platforms, resulting in billions of dollars in losses for brandowners. Major e-commerce players such as Alibaba, Ebay, and Amazon all are caught upin lawsuits because of counterfeit sales on their platforms. As online commercecontinues to grow, online intermediary platforms are increasingly being scrutinized fortheir effort in curbing counterfeits passing through their platforms.In this study, we examine the economic incentives of various stakeholders impinging onthe online counterfeit sales problem. The major stakeholders are classified as authenticproduct merchants, counterfeit merchants and platforms for the intermediaries.Specifically, we focus on understanding how different revenue models affect theintermediaries’ incentives for fighting counterfeits. The two main revenue models – theadvertising model and the brokerage model, are examined for their impact onintermediaries’ anti-counterfeit effort, and on the pricing decisions of the merchantsoperating on the platform.We construct a stylized model to demonstrate the intricate interrelationships of the threeplayers in the problem of counterfeits. Data will be collected on a number of productsfrom online platforms to verify our models. We will then apply text and data miningapproach to determine the proportion of merchants selling counterfeit versions of theproduct across different platforms. This should enable us to empirically determinewhether there is indeed a difference in pricing by the merchants as well as anti-counterfeitlevels across the different intermediary platforms under different revenueschemes.This project seeks to enhance our understanding of how to align the incentives incurbing counterfeit sales. The study aims to provide insights on whether intermediariesare not “motivated” enough to address the counterfeit sales problem, or under certainoccasions, are even beneficial. The findings should inform us whether online counterfeitsales have become a persistent problem due to misalignment of incentives. It alsoprovides direct policy implications on curbing online counterfeit sales.