The Impact of Revenue Models on Anti-Counterfeiting Measures for Online Intermediaries

Some have argued that online intermediaries facilitate sales of counterfeit and fake products. This study investigates the association between anti-counterfeit efforts and the revenue models implemented by intermediaries. We build a stylized analytical model to investigate the conditions under which either the advertising model or the brokerage model would lead to a higher anti-counterfeit effort. We find the intensity of market competition plays a critical role in the intermediary’s decisions on anti-counterfeit effort. Specifically, when market competition is less intense, we show that the intermediary has a greater economic incentive to combat counterfeit selling in the brokerage model than in the advertising model. We supplement empirical support to the results. In particular, using a composite score, we find the intermediary that adopts the advertising model tends to have a lower composite score than one using the brokerage model. Our results suggest the focusing on anti-counterfeit measures is more a means rather than an ends in combating counterfeit sales and the policymakers should pay more attention to the impacts from the adopted revenue model.