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EJM COMMENTARY
43,3/4
The emergence of counterfeit
trade: a literature review
320
Thorsten Staake
Department of Management, Technology, and Economics, ETH Zurich,
Switzerland
Frédéric Thiesse
Institute of Technology Management, University of St Gallen, St Gallen,
Switzerland, and
Elgar Fleisch
Institute of Technology Management, University of St Gallen, St Gallen,
Switzerland and Department of Management, Technology, and Economics,
ETH Zurich, Switzerland
Abstract
Purpose – Trade in counterfeit goods is perceived as a substantial threat to various industries. No
longer is the emergence of imitation products confined to branded luxury goods and final markets.
Counterfeit articles are increasingly finding their way into other sectors, including the fast-moving
consumer goods, pharmaceutical, and automotive industries – with, in part, severe negative
consequences for consumers, licit manufacturers, and brand owners alike. This paper seeks to shed
light on the economic principles of counterfeit trade and the underlying illicit supply chains.
Design/methodology/approach – An extensive literature review was conducted that comprised
contributions from different strands of management research.
Findings – Though governments as well as management have clearly identified the problem, very little
is known – both in practice and theory – about the mechanisms and structure of the illicit market, the
tactics of counterfeit producers, consumer behavior with respect to imitation products and the financial
impact on individual companies. The diversity of the counterfeit phenomenon underlines the need for
further research in this area and the development of company-specific measures for fighting product piracy.
Research limitations/implications – The clandestine nature of the counterfeit market limits direct
accessibility to the phenomenon. Consequently, the existing body of literature does not necessarily cover
all aspects of counterfeit activities. The review helps to highlight existing research gaps but may not be
able to identify additional aspects of the phenomenon that, thus far, have not been deemed relevant.
Originality/value – The paper critically reviews the current state of research across different
management-related disciplines. From an academic perspective it may serve as a starting point for a
future research agenda that addresses the current knowledge gaps. From a practitioner’s perspective it
is helpful for understanding the relevant influence factors and for developing appropriate,
state-of-the-art counterstrategies.
Keywords Counterfeiting, Trade, Supply and demand, Business ethics
Paper type Literature review
European Journal of Marketing Introduction

Vol. 43 No. 3/4, 2009
pp. 320-349 Practical background
q Emerald Group Publishing Limited Intangible assets, such as goodwill and intellectual property, constitute a significant
0309-0566
DOI 10.1108/03090560910935451 share of many companies’ equity. They are often the result of extensive investments in
research and development, careful brand management, and a consistent pledge to high The emergence
quality, reliability, and exclusiveness. However, the growing momentum of emerging of counterfeit
markets in Asia – where these intangible assets are difficult to protect – plus a general
trend in favor of dismantling border controls to ease the flow of international trade, and trade
the increasing integration and interaction between organizations in disparate locations,
require new measures to protect these assets and safeguard companies from unfair
competition. Product counterfeiting in particular – the unauthorized manufacturing of 321
articles which mimic certain characteristics of genuine goods and which may pass
themselves off as registered products of licit companies – has developed into a severe
threat to licit companies and consumers alike (Organization for Economic Cooperation
and Development, 1998).
The implications for manufacturers and brand owners are multifaceted. On the one
hand, companies are likely to face a loss of revenue owing to substitution effects by
illicit goods and constraints on product pricing (Montoro-Pons and Cuadrado-Garcia,
2006). Substandard imitation products that are difficult to distinguish from genuine
goods can diminish the level of quality associated with a product or company.
Moreover, large numbers of low-cost counterfeits can reduce the perceived
exclusiveness of luxury goods (Wilke and Zaichkowsky, 1999). On the other hand,
companies may experience increased brand awareness as well as additional demand
due to bandwagon and network effects (Nia and Zaichkowsky, 2000; Barnett, 2005;
Yao, 2005b). Counterfeit production can foster learning effects among illicit companies
(Die Zeit, 2006), but a high market share of counterfeit software, for example, may at
the same time establish lock-in effects and barriers to entry for emerging legitimate
competitors (Kirkpatrick, 2007).
However, in most cases the negative implications outweigh the positive effects by
far: preventive measures to ensure a high level of quality despite the existence of
counterfeit articles, considerable enforcement costs in cases of counterfeit occurrence,
expensive product recalls, potential liability claims in cases of health and safety
hazards for consumers, customer confusion and brand dilution are in fact of major
concern (Feinberg and Rousslang, 1990; Liebowitz, 2005). A company’s efforts are often
undermined by lax enforcement policies in countries that are notorious for their vivid
counterfeit production – particularly China (Hung, 2003) – and, in some markets, by
consumers who actively engage in buying counterfeit goods (Moores and Chang, 2006;
De Matos et al., 2007).
Objective and structure

Given the clandestine nature of counterfeit production, shipping, and consumption, the
development of a solid understanding of the counterfeit market and its underlying
supply chains constitutes a major challenge. Against this background, this
contribution reviews and discusses the existing body of research on the structures
and mechanisms of counterfeit trade. Our aim is to:
.
identify theoretical gaps and opportunities for further research; and
.
draw managerial implications for the fight against product piracy.
The remainder of the paper is organized as follows: we first confine the topic with
regard to other illicit market activities and furnish a precise definition of counterfeit
goods. Thereafter, we provide a comprehensive review of the academic literature
EJM dealing with the supply and demand sides of counterfeit trade, its business impact,
legal issues, and potential countermeasures. Following the literature review we discuss
43,3/4 the current state of research, from both a theoretical and a managerial perspective. The
paper closes with a summary and an outlook on future research.
Terms and definitions

322 Illicit trade denotes a wide variety of illegal or non-contractual activities. Trafficking in
controlled substances, stolen and smuggled goods, trade of all kinds with products
infringing intellectual property rights and even parallel imports may fall in this category.
Within these activities the enablers and driving forces, the roles of the actors and the
impact on affected enterprises are all clearly different. However, many publications lump
piracy and counterfeiting together with other forms of illicit trade – and deprive
themselves of the possibility to exploit the unique characteristics of the problem, for
example when analyzing the phenomenon or when developing countermeasures against it.
In fact, a clear topic confinement is crucial for a systematic discussion. A widely
used definition of counterfeiting and piracy is provided in the “Agreement on
Trade-related Aspects on Intellectual Property Rights (TRIPs)”. According to this
agreement, the term “counterfeit trademark goods” includes any goods bearing,
without authorization, a trademark which cannot be distinguished in its essential
aspects from the trademark registered for such goods, while “pirated copyright goods”
refers to infringements of copyright and related intellectual property rights (World
Trade Organization, 1994). However, breaches of trademark and copyright laws
frequently overlap as companies often protect their products under either of the
intellectual property rights. Moreover, the definition includes both imitations intended
for sale to third parties and reproductions for personal use (e.g. copies of a colleague’s
software or music CD). In fact, the definition, though technically correct, is not well
suited for developing an understanding of the counterfeit supply chain. Therefore, in
this contribution we define counterfeit trade as “trade in goods that, be it due to their
design, trademark, logo, or company name, bear without authorization a reference to a
brand, a manufacturer, or any organization that warrants for the quality or standard
conformity of the goods in such a way that the counterfeit merchandise could,
potentially, be confused with goods that rightfully use this reference”. This definition
covers the unauthorized use of brand names, characteristic colors or shapes, etc., as
well as the illicit use of control stamps and marks of conformity, but excludes
unauthorized copying of digital content by private users and other illicit activities such
as parallel trade, bootlegging, and trade in stolen products (cf. Figure 1).
Furthermore, as we focus on counterfeit physical goods, a more fine-grained
distinction should be made with regard to buyer perceptions. Buyers may acquire
counterfeit articles either by not being aware of the underlying intellectual property
infringement (deceptive counterfeiting) or by knowing full well the illicit nature of the
product (non-deceptive counterfeiting). In both cases the consumer behavior and sales
tactics of the illicit actors are different, and both have specific implications on brand
owners and manufacturers.
Literature review
Methodology
Even though the first publications date back to the late 1970s, counterfeiting is still
regarded as a rather young field of research. However, the public perception of
The emergence
of counterfeit
trade
323
Figure 1.
Classification scheme of
counterfeiting and
related terms
counterfeit trade as a threat to both companies and consumers has risen dramatically
in recent years, which is reflected by a large number of related publications in
practitioner journals and the mass media (cf. Figure 2). In parallel, the annual number
of related scholarly contributions has risen as well. However, counterfeiting research
has not yet established itself as an autonomous research stream; instead, it is
distributed across different strands of management research, for example strategic
management, marketing, logistics, and others. Against this background we review in
this section the existing body of academic literature so as to provide an integrated
portrayal of the current level of knowledge in this field. We explicitly focus our
Figure 2.
Counterfeiting-related
publications in academic
and practitioner journals
1976-2006
EJM analysis on journals in the area of management and economics. Accordingly, works in
43,3/4 other disciplines such as law (e.g. contributions on the development of IP rights in China)
or engineering (e.g. contributions on the development of anti-counterfeiting technologies)
are only mentioned if their individual contributions are of particular importance.
The starting point for our analysis was an extensive search in electronic journal
databases (ProQuest ABI/INFORM, EBSCOhost Business Source Premier) for the
324 keywords “counterfeit”, “counterfeiting”, and “product piracy”. In a second step, we
selected those contributions that concentrate on counterfeits in the sense of our
previous definition. References from these studies were examined to identify further
contributions from additional sources. Moreover, we decided to include selected reports
from governmental authorities and industry associations on the extent of counterfeit
trade, as these provide the primary data that many other contributions build upon.
Some researchers have proposed the division of counterfeiting research into
investigations of supply chain aspects on the one hand and demand-side aspects on the
other (e.g. Bloch et al., 1993; Bush et al., 1989; Tom et al., 1998). However, as will be
shown later, this classification does not do justice to the complexity of the subject, as
many contributions are either too general or too focused on further issues to be
assigned unambiguously to one of the two aspects. Therefore, we propose to structure
our review around the six categories depicted in Figure 3, considering the topic from
different perspectives of the licit and the illicit supply chain as well as the interrelations
between the two. The major contributions from each category are discussed in greater
detail in the following subsections:
.
general descriptions of the phenomenon provide an overview of counterfeiting, its
public perception, and its relevance to management theory and practice;
.
impact analyses qualitatively investigate or quantify the consequences regarding
turnover, brand value, liability claims, and other key indicators for
manufacturers of genuine goods and their supply chain partners;
.
supply-side investigations concern themselves with the production settings,
tactics, and motives of illicit actors, and the ways in which their products enter
the licit supply chain;
.
demand side investigations focus on customer behavior and attitudes in the
presence of counterfeit goods;
Figure 3.
Facets of counterfeiting
research along the supply
chain
.
managerial guidelines to avert counterfeits comprises the tools and The emergence
recommendations at organizational, strategic, or technical levels for the of counterfeit
management of affected companies; and
.
legal issues and legislative concerns refer to different options for IP rights
trade
enforcement in the country of origin or in the respective market area to prevent –
or at least to diminish – the availability of counterfeits goods.
325
General descriptions of the phenomenon
The lion’s share of general information about product counterfeiting is to be found in
the press and in trade magazines (e.g. The Economist, 2004; Time Magazine, 2004;
Business Week, 2005; Financial Times, 2005; Financial Times Deutschland, 2007) as
well as in reports published by industry alliances or government organizations (e.g.
Anti-Counterfeiting Group, 2003; World Health Organization, 2006). These articles
typically describe occurrences of counterfeit trade, outline examples of spectacular
cases or seizures, illustrate the pervasiveness of counterfeits in selected markets and
discuss evidence on the problem’s magnitude and growth. From a research perspective,
these articles mainly provide meta-information, for example by reflecting the
perception of the problem and helping to identify cases which may be of interest for
further investigation.
In scholarly journals, Kaikati and LaGarce (1980) are amongst the first to discuss
the general problem of brand piracy. They differentiate between outright piracy,
imitations and wholesale piracy, briefly sketch generic strategies to prevent
counterfeiting and outline international laws to protect trademarks. As per other
early publications (see Table I), the authors provide a broad overview on counterfeiting
rather than analyzing the problem in greater detail. Moreover, the early publications do
not seem to reflect the enhanced reengineering and production capabilities of
contemporary counterfeit producers, nor do they discuss the various implications of
counterfeit trade.
Most succeeding scholarly articles set a focus on individual aspects of counterfeit
trade, only discussing general issues of the phenomenon to provide the reader with
necessary background information. Insightful descriptions can, for example, be found
in Grossmann and Shapiro (1988a, b) and Green and Smith (2002).
In general, counterfeiting does not seem to be seen as a research area of itself but as
an extension of other disciplines. Most scholarly articles are rooted in marketing
science and deal with selected aspects of consumer behavior, perhaps because
established research tools can be applied to many related research questions of interest.
Impact analyses
Analyses on the impact of counterfeit trade (see Table II) typically base themselves on
market share estimates, with subsequent calculations translating the number of
counterfeit articles into their financial effect. Given the limited accessibility to market
information, both steps are somewhat delicate.
Estimates on the extent of counterfeit trade are frequently cited in the press (e.g.
Business Week, 2005), in industry white papers (e.g. International Chamber of
Commerce, 2006), government reports (e.g. European Commission, 2005), juristic
recommendations (e.g. Leahy, 2006) and scientific publications (e.g. Gentry et al., 2006).
Most appraisals are based on a working paper from the International Chamber of
EJM
Author(s) Year Short description
43,3/4
Hansen 1978 Description of the intentional purchase of counterfeit
articles
Kaikati and LaGarce 1980 Discussion of different forms of brand piracy. Strategies to
prevent counterfeiting. Outline of international laws to
326 protect trademarks
Grossman and Shapiro 1988a Demand-price curve in markets with both deceptive
counterfeit articles and genuine products. Welfare analysis
regarding the disposition of confiscated counterfeit goods
Grossman and Shapiro 1988b Description of non-deceptive counterfeiting as a
disaggregation of brand and product. Demand-price curves
in a market with counterfeit and genuine products
Nill and Shultz 1996 Ethical decision-making, moral reasoning, and purchase
intentions in the context of counterfeit goods
Green and Smith 2002 Summary on the literature that addresses counterfeit trade.
Strategies for addressing the threat in developing markets.
Case study of a major company producing and selling
alcoholic beverages
Hilton et al. 2004 Typology of counterfeiting that occurs in the luxury
clothing industry. Discussion of ethical bases for
intellectual property
Bosworth 2006 Discussion of statistical evidence on the extent, cause, and
Table I. impact of counterfeit trade. Proposal of a continuum of
General descriptions of deceptiveness rather than a dichotomy with respect to
the phenomenon counterfeit purchase intentions
Commerce’s Counterfeiting Intelligence Bureau that was compiled for the Organization
for Economic Cooperation and Development (1998). According to this report, 5-7
percent of world merchandise trade is in counterfeit goods. However, as a later report
from the same source admits, the estimates neither base on substantiated data nor on a
defined methodology, and are likely to be “on the high side” (Organization for
Economic Cooperation and Development, 2006). In fact, well-grounded market-share
analyses are sparse:
.
The study Counting Counterfeits: Defining a Method to Collect, Analyze and
Compare Data on Counterfeiting and Piracy in the Single Market, published by
the European Commission and conducted by the Centre for Economics and
Business Research (2002), aims at developing methods to support governments
and private organizations in their effort to generate robust and comparable
estimates of counterfeiting and piracy. The authors propose a so-called
“methodology decision tree” to help users select an appropriate approach for data
collection with respect to different products. Recommendations are to use
surveys of distributors and retailers, mystery shopping, seizure data and
detection rates, or consumer surveys. Furthermore, the CEBR discusses how
much effort a company should expect to invest to collect the required data.
Concrete market shares are not calculated, and the approach appears to be
difficult to put into practice.
.
An industry-specific approach is provided by the Business Software Alliance
(BSA), which – together with International Data Group (IDC) – publishes
The emergence
of counterfeit
Harvey and Ronkainen 1985 Discussion of potential ways illicit actors can obtain trade
classified information which enables them to produce
counterfeit articles. Loss estimates based on industry
estimates
Liebowitz 1985 Beneficial effects of intellectual property rights violations 327
that result from the use of modern copying technologies.
Case example of the impact of photocopying on journal
publishers
in a market with counterfeit and genuine products
Feinberg and Rousslang 1990 Welfare implications regarding foreign infringements of
intellectual property rights
Conner and Rumelt 1991 Analysis of not protecting software against piracy, which
can be the best policy as it may raise profits and lower
selling prices and is beneficial for both firms and
consumers
McDonald and Roberts 1994 Transfer of technology to less developed countries and the
satisfaction of market need as a positive aspect of
counterfeit trade
Givon et al. 1995 Diffusion modeling approach to track diffusion of pirated
and legal software over time
Wilke and Zaichkowsky 1999 Discussion of the impact of brand imitation on innovation
and brand equity
Nia and Zaichkowsky 2000 Perceptions of luxury brand owners towards counterfeit
luxury goods
Barnett 2005 Discussion of the effects of counterfeiting on the perception
of status goods
Yao 2005a Impact of adopting a monitoring system on counterfeiting
at a macro-economic level by providing an economic model
to assess the socio-economic welfare effects due to
counterfeit trade
Yao 2005b Impact of the presence of counterfeit products on
monopolist profits
De Castro et al. 2008 Benefits of product piracy on the right holder due to a
reduction of inimitability, which can increase the overall
value of the firm
Montoro-Pons and Cuadrado-Garcia 2006 Substitution effects of piracy on legal demand for music Table II.
recordings Impact analyses
worldwide estimates of the counterfeit software market annually. Their

underlying assumption is that the quantity of pirated software equals total
demand less total legitimate supply. Total demand is deduced by using estimates
of the average number of units of software installed on each PC and the number
of systems on the market; total supply is derived from software revenues and
average software prices. The calculation is performed for different
EJM classifications, such as business and consumer applications, new and existing
43,3/4 computers and different software categories (Business Software Alliance, 2006).
The BSA assumes that every piece of pirated software replaces one genuine
product, which seems rather unlikely, especially in the emerging economies,
where free open-source substitutes are available and where the consumer’s
budget often does not allow for purchasing genuine software. The authors claim
328 that decreasing piracy by 10 percent would add approximately $US70 billion in
tax revenues and an additional $US400 billion of gross domestic product (GDP)
to local economies; they furthermore state the projected sector growth and the
number of additional IT employees on a country level.
.
The International Federation of the Phonographic Industry (IFPI) aims at
providing a more realistic picture of counterfeit market (Jopling, 2005;
International Federation of the Phonographic Industry, 2006). It follows a
mixed methodology approach based on consumer surveys, enforcement
statistics (e.g. European Taxation and Customs Union, 2006), test purchases,
seizures of production facilities and estimation of their production capacity. The
share of counterfeit media is given in terms of the number of pirated articles
(mostly CDs and DVDs) and their “physical piracy value”. The latter, in contrast
to the BSA estimate, takes into account the discounted price for which counterfeit
media is sold.
Despite their shortcomings, reports on the extent of counterfeit trade have not yet
attracted a lot of criticism. A major issue with most studies, however, is the lack of
detailed descriptions of the applied methodology regarding data collection,
extrapolation, statistical analysis, etc., which limits the studies’ transparency.
Furthermore, assumed relationships between piracy, supply and demand are
questionable as they do not separate piracy from other forms of substitution. Often,
the underlying data itself gives rise to criticism. The use of a monetary frame of
reference can especially lead to misleading statistics if not carefully defined, as the
following case exemplifies: Before 2002, German customs officers reported the “street
price” of seized goods estimated at their own discretion, whereas after 2003 and 2004
they had to use the market price of original products for their statistics. However,
goods which are often sold as non-deceptive counterfeits, such as luxury consumer
goods, have a street price which is often only a fraction of the sales price for the
original. This explains a considerable part of the significant (estimated) growth in
counterfeit trade within the German market between 2002 and 2003, which is also
reflected in the European customs statistics (cf. European Taxation and Customs
Union, 2005).
In the scientific community very little has been published on the financial impact of
counterfeit trade on affected companies. Nia and Zaichkowsky (2000) surveyed the
perceived value of luxury goods where faked counterparts are available in the market.
They found that the majority of respondents indicated that the value, satisfaction, and
status of original luxury brand names were not decreased by the wide availability of
counterfeits. Furthermore, the majority of respondents disagreed that the availability
of counterfeits negatively affects their purchase intentions for original luxury brands.
Feinberg and Rousslang (1990) conducted a study among US companies, examining
the welfare effects of foreign intellectual property rights infringements. While they do
not specifically focus on counterfeit trade, they find that profit losses are at least as The emergence
great as 1 percent of the total sales and expenditures on countermeasures are less than of counterfeit
4 percent of the losses.
Barnett (2005) and Yao (2005b) highlight that companies may experience increased trade
brand awareness as well as additional demand due to bandwagon and network effects.
Bill Gates, in an interview with CNN, stressed the beneficial effects of software piracy
on the development of Microsoft’s market in China, mainly due to lock-in and barriers 329
against the entry of emerging legitimate competitors (Kirkpatrick, 2007). Learning
effects among illicit companies were illustrated in a German newspaper (Die Zeit,
2006), but have not yet been thoroughly investigated by academics.
In fact, compared to the importance of the phenomenon, research on the economic
impact of counterfeit trade at a micro-economic level is sparse. The required analyses
are in part strongly related to investigations of the counterfeit demand side, as
alternative buying behavior and the perceived impact on brand value have to be first
understood before conclusions can be drawn on the potential financial losses amongst
brand owners and licit manufacturers. Other aspects, which still require due
consideration, are the impact on quality costs and investigation of the potentially
positive side effects of counterfeit markets, as mentioned above.
Supply side investigations

Very few publications are dedicated to the supply-side issues of the counterfeit market
(see Table III), though knowledge in this field is of great importance for understanding
the way the illicit market operates, how companies in emerging economies use
imitation products to foster learning and development processes, and how licit brand
owners can fight illicit producers. A reason for the lack of related work is very likely to
be the limited access to illicit market players and thus the difficulty of obtaining
information on clandestine illicit market activities.
An early contribution on the supply side was published by Harvey and Ronkainen
(1985). The authors point out potential ways that illicit actors may obtain the
know-how required to manufacture counterfeit articles. However, their work is based
mainly on the assumption that intellectual property is stolen from within the affected
company, thus not reflecting the considerable reverse-engineering capabilities of
today’s “counterfeit industry”.
Olsen and Granzin (1992, 1993) discuss how brand owners can prevent otherwise
trustworthy distributors from knowingly or unknowingly selling illicit imitation
products. The authors stress the importance of maintaining a high level of satisfaction
and dependence among their supply chain partners, as well as showing their high
commitment, in order to gain their assistance in fighting the counterfeit trade.
In a very insightful case study Green and Smith (2002) detail the efforts of an
international company to eliminate the production and distribution of counterfeit
alcoholic beverages in an emerging Asian market. Thereby, they also cover important
characteristics of counterfeit production and detail the organizational structures of the
illicit market. Their study provides evidence for a sophisticated production system
characterized by a high degree of labor division and specialization, highly protected
individual operations organized in such a way that the elimination of a single function
or production site does not endanger other functions, and by strong ties to organized
EJM
43,3/4
Harvey and Ronkainen 1985 Discussion of potential ways that illicit actors can obtain
classified information which enables them to produce
estimates
330 Olsen and Granzin 1992 Depiction of how manufacturers can establish a
relationship with their distributors to gain support in
fighting illicit trade. Interviews with five retailers from the
automotive industry to conceptualize a structural equation
model
Olsen and Granzin 1993 Investigation of the influence of dependence, control,
channel conflict, and satisfaction on a dealer’s willingness
to help a manufacturer combat counterfeiting. Findings are
that manufacturers can engender cooperativeness by
nurturing satisfaction and dependence in
manufacturer-dealer relationships
Glass/ Wood 1996 Application of social exchange theory to investigate the
influence of situational factors on the intentions to engage
in software piracy. Findings are relevant in the context of
exchange in peer-to-peer networks but do not directly
apply to commercial counterfeiting
alcoholic beverages
Ben-Shahar and Assaf 2004 Development of a formal model in which a manufacturer
may promote copyright infringements to indirectly
participate in predatory pricing and to deter competitors
from entering the market
Liu et al. 2005 Effect of random examinations and different punishment
levels with respect to store managers who potentially sell
Table III. deceptive counterfeit products
Supply side Khouja and Smith 2007 Analysis of profit maximization models, which take both
investigations piracy and saturation effects into account
crime. The case study also shows that, despite high margins from the illegal activities,
consistent seizures and raids have the potential to drive illicit actors out of business.
To the best of our knowledge no work has yet been published which investigates
the production settings and manufacturing strategies of counterfeit producers, the
impact of counterfeit trade on organizational learning or the development of counterfeit
producers and their possible transition to law-abiding enterprises. Another field of
research which has not been systematically investigated is the interaction of, and the
interfaces between, the counterfeit market and the “licit” supply chain.
Demand side investigations

Research addressing awareness, purchase intentions, demographic characteristics or
the attitudes of counterfeit consumers makes up the largest portion of the publications
under consideration (see Table IV). This is in contrast to the claims of many authors
The emergence
of counterfeit
Author(s) Year Short description trade
Bamossy and Scammon 1985 Analysis of consumer awareness, expectations and
experiences of consumers who unknowingly purchased
counterfeit goods. Results from 38 interviewees reflect the 331
limited experiences consumers had with counterfeit goods
in the early 1980s
Higgins and Rubin 1986 Description of the separation of brand and product for
counterfeit cases where consumers purchase illicit goods
knowingly
Bloch et al. 1993 Study on the willingness to buy counterfeits among 200
participants. Self-image is found to be partially significant,
indicating that counterfeit consumers are less confident,
successful, of lower status, and less wealthy
Parthasarathy and 1995 Survey among 205 US students. The willingness to engage
Mittelstaedt in piracy to be strongly affected by the attitude towards
piracy, subjective norms, perceived utility of the software,
and the willingness to seek help from others to reduce
non-monetary costs. The opinion that the high prices of
software are not justified did not appear to affect piracy
behavior
Wee et al. 1995 Empirical study among 949 Asian students.
Product-attribute variables are found to perform better in
explaining purchase intentions than demographic constructs
Chakraborty et al. 1996 Study involving 130 US students. High ethnocentrism
increases the “feeling of guilt” of consumers if the original
good is produced within the USA
Cordell et al. 1996 Study among 221 students, testing the correlation between:
the willingness to purchase counterfeit articles and the
consumer’s attitude toward lawfulness; the expected
performance of fakes with the intention to purchase fakes
in the future; the dependence of risk associated with
counterfeit goods and purchase intentions; the consumer’s
likelihood of knowingly purchasing a counterfeit product;
and price concessions for counterfeits
Glass and Wood 1996 Application of social exchange theory to investigate the
influence of situational factors on the intentions to engage
in software piracy. Findings are relevant in the context of
exchange in peer-to-peer networks but do not directly
apply to commercial counterfeiting
Chakraborty et al. 1997 Examination of means of dissuading consumers from
knowingly buying counterfeit articles among a group of 87
US students. Stressing inferior product quality of fakes as
well as their harmful effects on national enterprises and the
job market can reduce the demand for counterfeits
Chang 1998 Comparison of the validity of the theory of reasoned action
(TRA) and the theory of planed behavior (TPB) as applied
to illegal copying of software. The results suggest that
perceived behavioral control is a better predictor of Table IV.
behavioral intention than attitude Demand side
(continued) investigations
EJM Author(s) Year Short description
43,3/4
332 in a market with counterfeit and genuine products
Tom et al. 1998 Survey involving 126 US consumers. Results suggest that
young and low-income consumers are more likely to
purchase counterfeit goods than the average and that
satisfaction with counterfeit products is positively related
to future purchase intentions
Albers-Miller 1999 Survey involving 92 US students. Product type, buying
situation, and price are found to be significant predictors of
willingness to buy; the interactions of risk with respect to
product type and price are also shown to be significant
predictors
Schlegelmilch and Stöttinger 1999 Survey among 230 US students. Price difference between
counterfeit and genuine products is negatively related to
the intention to purchase illicit goods; quality perception of
such goods and anti-counterfeiting campaigns had no
significant influence on the willingness to purchase
counterfeits
Husted 2000 The author examines the influence of national culture on
software piracy based on data on 39 countries and finds
piracy behavior significantly correlated with gross national
product per capita, income inequality, and individualism. The
correlation with power distance, masculinity, and
uncertainty avoidance is not found to be at a significant level
Ang et al. 2001 Survey among 3,251 Singaporean consumers with a focus
on counterfeit music CDs. Typical counterfeit consumers
are value-conscious, less normative, male, and of low
income
Gentry et al. 2001 The authors investigate choice of 102 international
students between a genuine article and various
counterfeits. They identify interesting aspects regarding
the separation of brand and product, but do not provide an
underlying analysis
Leisen and Nill 2001 The survey among 144 US students showed a strong
influence of the shopping environment and the perceived
financial and performance risk on the willingness to
purchase counterfeit pain reliever, sunglasses, and watches
Phau et al. 2001 Survey among 100 consumers in Hong Kong. Those who
less often purchase counterfeit clothing are younger, have a
lower disposable income, and are less well educated
Swee et al. 2001 Survey among 3,600 Asian consumers who buy counterfeit
goods. Counterfeit consumers regard the purchase of fakes
as less risky and less unethical, are more value conscious,
and have a lower average income compared to those who
do not purchase counterfeit articles
Table IV. (continued)
The emergence
of counterfeit
Wagner and Sanders 2001 Investigation of the relationship between religion and
ethical decision making for general unethical situations
trade
and purchase of pirated software. The study suggests that
religion influences counterfeit purchase decisions
Prendergast et al. 2002 Survey in Hong Kong of 200 consumers who have
previously bought counterfeit goods. Important
333
factors of influence for the purchasing decision were
price, the perceived level of quality, friends’ and family
opinion, age, money previously spent on counterfeits,
and ethical and legal issues. Methods to identify
counterfeits were the low price followed by the location of
purchase
Tan 2002 Survey among 377 Chinese software users. Purchase
intentions are influenced by the perceived moral intensity,
magnitude of consequences, temporal immediacy and
social risk, the perceived financial, performance,
prosecution, and social risk, moral judgment, and cognitive
moral development
Chuchinprakarn 2003 Investigation of the frequency of use of counterfeit goods
among 662 students in Thailand. Factors that positively
affected counterfeit consumption were wealth, materialistic
values and influence of celebrities
Harvey and Walls 2003 Empirical study among 120 American and Asian
consumers. Price elasticities were found to be substantially
larger in Las Vegas than in Hong Kong
Hoe et al. 2003 Study among 20 consumers under the age of 30 in the UK.
Fashion counterfeits are seen as substitute for upscale
designer brands. Counterfeits help their buyers to create
identities, communicate values, and impress others.
Consumers take care that the counterfeit nature remains
unknown to others
Hung 2003 Discussion of the roots of counterfeit trade in China.
Reasons are the strong domestic demand for imitation
products and the patronage of the government
Peace et al. 2003 Extension of the theory of reasoned action by a factor
of perceived behavioral control as posited by the theory
of reasoned action, and punishment certainty/severity.
In a survey among 203 students, the model was able to
explain 65 percent of variance in software piracy
intention
Balkin et al. 2004 The authors contend that in some cases piracy can improve
the value of intellectual property and attribute this effect
mainly on network and bandwagon effects and barriers to
entry of competitors. However, the magnitude of these
effects in comparison with negative implications for brand
owners is not analyzed
Ben-Shahar and Assaf 2004 Development of a formal model in which a manufacturer
may promote copyright infringements to indirectly
participate in predatory pricing and to deter competitors
from entering the market
(continued) Table IV.
43,3/4
Moores and Dhaliwal 2004 Survey among 462 computer users in Singapore, the
authors find that the high availability, low risk of
prosecution, and high cost of the genuine software are
major motives to purchase pirated copies
Papadoulos 2004 Investigation of the relationship between product pricing,
334 copyright enforcement, and black market formation. Piracy
is directly related to the legitimate sales price and the size
of the counterfeit market
Chiou et al. 2005 Survey among 207 young Taiwanese consumers. Singer
idolization, perceived prosecution risk, perceived social
consensus, and reduced proximity to reduce the attitude
towards pirated music CDs
Jenner and Artun 2005 Investigation of purchase intentions of 202 German tourists
in Turkey with respect to textiles, fashion accessories,
perfume, CDs, and watches. Expected quality of individual
goods is identified as a major factor
Penz and Stöttinger 2005 Survey among 1,040 Austrian consumers. Search costs and
accessibility are major factors determining counterfeit
purchases. The embarrassment potential strongly
influenced purchase intentions for counterfeits which are
significantly cheaper than the originals, while the
subjective norm strongly influenced purchase intentions at
high-priced fakes
Wang et al. 2005 Survey involving 314 Chinese students. Impact of
personal/social factors and attitude measures on
counterfeit purchase intentions
Cheung and Prendergast 2006 Investigation of the correlation between demographics of
1,152 adult Asians with their counterfeit buying behavior.
Middle- and high-income families, males, white-collar
workers, people with a high-school degree, and singles
are more likely to be heavy buyers of counterfeit CDs.
Females are more likely to be heavy buyers of counterfeit
apparel
Eisend and Schuchert-Güler 2006 Review of selected studies on the determinants of
consumers’ intention to purchase counterfeit
products
Gentry et al. 2006 Investigation of product counterfeiting from a consumer
search perspective. As the quality of counterfeits improves,
it is becoming more difficult for the consumer to identify
them
Lau 2006 Survey among 84 Chinese internet users. Extremely high
prices of original software are to be seen as the main factor
for the strong demand in pirated copies
Moores and Chang 2006 Model of ethical decision making based on the
four-component model of morality. Survey among 243
students in Hong Kong. Use is determined by buying,
buying is determined by intention, which is in turn
determined by judgment. The recognized infringements of
intellectual property rights appear to not affect the
perceived morality of the judgment
Table IV. (continued)
The emergence
Author(s) Year Short description of counterfeit
Santos and Ribeiro 2006 Examination of the impact of Hofstede’s cultural trade
dimensions on the demand for counterfeit goods within
European countries. Uncertainty avoidance and
individualism are negatively correlated with counterfeiting
Woolley and Einingen 2006 Analysis of purchasing frequencies and underlying
335
antecedents of software piracy among US students. Results
indicate that students’ understanding and knowledge of
copyright laws have increased after 1991, but this
knowledge has not influenced software piracy rates
Bian and Veloutsou 2007 Comparison of British and Chinese consumers who admit
to have knowingly purchased counterfeit products.
Demographic variables have not been found to
significantly influence counterfeit demand. In both
countries, consumers show a very low opinion on
counterfeit products in general, but perceive their average
quality as similar compared to non-logo products
Furnham and Valgeirsson 2007 Study on the foundation of Richins’ materialism scale, the
Schwartz value inventory, and questions about beliefs
about counterfeits. Beliefs about counterfeits, demographic
information, and materialism but not the Schwartz value
inventory adds considerably to the explanation of the
variability in people’s willingness to buy counterfeit
products
De Matos et al. 2007 Survey among 400 Brazilian consumers. Integration of the
main predictors of the consumers’ willingness to purchase
counterfeit goods in one structural equation model Table IV.
who motivate their work by stating that demand-side investigations were

underrepresented in counterfeit-related literature.
Grossman and Shapiro (1998a) research demand-price relationships in markets with
counterfeit and genuine products. However, a closer investigation of the demand-price
curves reveals that their characteristic progression results from assumptions which do
not reflect the critical characteristics of counterfeit products, rather, they result from
depreciation effects which are not necessarily related to the phenomenon under study.
In a later, frequently cited work, the authors characterize counterfeiting as a
disaggregation of product and brand, which can be regarded as a major contribution to
theory in this field (Grossman and Shapiro, 1998b).
Gentry et al. (2006) investigate product counterfeiting from a consumer search
perspective. Interviews with consumers provide a picture of the cues they use to detect
counterfeits and for decisions to purchase or not to purchase fake goods. Reliable cues
with respect to authenticity were arrangement and location of the sales outlet and
product price. While a small group of consumers said they were able to notice very
minor deviations among genuine and original products, the quality only serves as an
indicator for the class of poorly manufactured knockoffs. Factors positively affecting
purchase decisions of counterfeits were their low prices, the low investment risks when
buying low-cost fakes, negative reactions to the speed at which fashion products fall
out of favor, and, in Western markets, the fun of showing imitation products to friends.
EJM In China especially, the potential loss of face when exposed as a counterfeit consumer
43,3/4 negatively affects the decision to purchase counterfeit goods.
Penz and Stöttinger (2005) rely on the theory of planned behavior to systematize
past findings in the field of non-deceptive counterfeit purchases and come up with a
model explaining key drivers for the demand for counterfeits. Their findings indicate
that search costs and accessibility are major factors determining counterfeit purchases.
336 The embarrassment potential appeared to strongly influence purchase intentions with
respect to counterfeits that are significantly cheaper than the originals, while the
subjective norm (i.e. the valuation of quality and functionality) strongly influence
purchase intentions with respect to counterfeits that were similar in price compared to
their genuine counterparts.
Several other contributions have also concentrated on investigating customer
attitudes towards counterfeits. Moores and Chang (2006), for example, find that
infringements of intellectual property rights in the context of pirated software appear
not to affect the perceived morality. Eisend and Schuchert-Güler (2006) thoroughly
review selected studies on the determinants of consumers’ intention to purchase
counterfeit products and provide a theoretical concept in order to explain the motives
when purchasing such goods. Furnham and Valgeirsson (2007) use Richins’s
materialism scale, the Schwartz value inventory, and questions beliefs about
counterfeits to analyze the variability in people’s willingness to buy counterfeit
products. They find that belief about counterfeits, demographic information, and
materialism but not the Schwartz value inventory (i.e. power, achievement, hedonism,
self-direction, universalism, benevolence, conformity, tradition, and security) adds
considerably to the explanation.
Wee et al. (1995) examine the impact of non-price determinants on consumers’
intentions to purchase counterfeit products. In general, the authors find these
determinants to be highly product specific, and thus are not able to generalize their
findings. Bloch et al. (1993), in a laboratory market, offered consumers original and
counterfeit goods and found pronounced purchase intentions for the illicit products.
Cordell et al. (1996) also investigate consumers’ willingness to purchase counterfeit
products, which they find to be positively related to product performance expectations.
Branding and price conditions as well as retailer conditions influence the willingness to
purchase low, but not high, investment-at-risk products.
Not yet thoroughly analyzed has been the difference in purchasing behavior of
consumers in test markets with and without imitation products. Corresponding
findings would help to understand the interference of counterfeit trade with licit trade
and thus allow for a better understanding of substitution effects with respect to
non-deceptive counterfeiting. Another area of study, which has only been vaguely
investigated, is the impact of illicit markets on the perception of trademarks and
brands and thus on the goodwill towards licit enterprises. Both areas need to be
addressed when conducting financial impact analyses.
Legal issues and legislative concerns

Intellectual property rights (IPR) are key issues for international trade. Consequently,
the academic literature on IPR is very comprehensive. Rather than aiming to provide
an exhaustive overview, we refer to Maskus (2000) for a thorough introduction, and
concentrate on selected publications which bear a direct reference to counterfeit trade The emergence
(see Table V). of counterfeit
Globerman (1988) briefly discusses the cost of trade protection. He recommends a
policy approach that emphasizes the “private” efforts of brand owners to protect their trade
products rather than strengthening retaliatory trade legislation. In this context, Hetzler
(2002) summarizes the legislative measures taken in the EU between 1988 and 2002. He
highlights the effects of these initiatives for the German market and elaborates on the 337
relationship of counterfeit producers with organized crime, emphasizing the
entrepreneurial character of the activities.
Taking a global perspective, Jain (1996) investigates the conflict between the
industrialized and developing countries, which favor a high and a low level of
protection, respectively. Shultz and Nill (2002) further elaborate on this issue by
introducing a game theoretical perspective to examine violations of IPR within the
context of social dilemmas. The contradicting interests of industrialized and less
developed countries are exemplified using the prisoner’s dilemma.
Globerman 1988 Discussion of net costs of counterfeit trade and the cost of
trade protection. Policy approach that emphasizes the
“private” effort of brand owners to protect their products
rather than strengthening retaliatory trade legislation
Jain 1996 General issues of intellectual property infringements and
the conflict between the industrialized and developing
countries
Ronkainen and Guerrero-Cusumano 2001 Determinants of intellectual property violation on the
example of software piracy
Hetzler 2002 Legislative measures taken in EU between 1988 and 2002
and their effects for the German market. Relationship of
counterfeit producers with organized crime
Mitchell and Kearney 2002 Discussion of measurement techniques of brand confusion
to better evaluate and judge upon trademark infringements
Shultz and Nill 2002 Game theoretical perspective by examining violations of
intellectual property rights within the context of social
dilemma
Bach 2004 Discussion of the implications of music piracy on
consumers and the control of media companies through
electronic monitoring. The point of view is expressed that
both extreme scenarios (total devaluation of intellectual
property versus total control of the right holders) are
unlikely and that a careful discourse of policy makers is
necessary in order to find a suitable intermediate position
Javorcik 2004 Investigation of the relationship of the degree of
enforcement of IPR on the composition of foreign direct
investment. A lack of IPR protection deters investors from
undertaking local production but encourages them to focus
on distribution of imported products
Liebowitz 2005 Positive effects of counterfeit products on licit brand Table V.
owners in the form of indirect appropriability, the exposure Legal issues and
effect, and network effects legislative concerns
EJM In his empirical study, Javorcik (2004) explores the relationship of the degree of
43,3/4 enforcement of IPR on the composition of foreign direct investment. The data indicates
that investors relying heavily on the protection of IP are deterred by weak IPR regimes.
A lack of IPR protection deters investors from undertaking local production but
encourages them to focus on distribution of imported products. The latter effect is
present also in sectors that do not heavily rely on IPR protection.
338 Not thoroughly addressed in this context are: the difficulties of brand owners who
assert their rights in markets where large numbers of infringements occur; the
efficiency of the existing frameworks in such markets; and the influence of established
intellectual property norms on the development of emerging economies.
Managerial guidelines to avert counterfeit trade

Managerial countermeasures have received some attention among researchers (see
Table VI), which may reflect industry’s demand for effective anti-counterfeiting
strategies. Harvey and Ronkainen (1985) identify strategies that companies use to
combat counterfeit trade: hand-off, prosecuting, withdrawal, and warning. Shultz and
Saporito (1996) provide a more detailed framework of anti-counterfeiting strategies,
including measures such as “use of high-tech labeling”, “co-opt offenders”, and
“educate stakeholders at the source”, but do not suggest how to operationalize these
strategies.
Chaudhry et al. (2005) address the questions of how managers can conceptualize the
intellectual property environment, how such environments affect market entry
decisions, what anti-counterfeiting strategies are frequently used and how efficient
each tactic is in the host country market. Bach (2004) examines the interaction of law
and technology – the “simultaneous and interwoven deployment of legal and
electronic measures to protect digital content” – and raises the question of whether
technologies are merely a defense strategy against piracy, as the industry asserts, or
rather an attempt to fundamentally redefine the producer-consumer relationship.
Hung (2003) finds that not many companies are able to oppose counterfeit trade on a
managerial and legal basis. He supports this with the example of the Chinese
environment where the response strategies, which are recommended in business
literature, only show limited effect. He concludes that foreign companies may have to
wait until China becomes a victim, on balance, instead of a benefactor of product
counterfeiting before they can rely on better protection of their intellectual property.
Olsen and Granzin (1992) investigate licit supply chain members other than brand
owners regarding their actions towards illicit trade. Their study is based on data
gathered from store managers to examine responsibility, willingness to help, and
possible conflicts with respect to counterfeit products. The findings are of importance
when assessing the acceptance of anti-counterfeiting strategies.
Without doubt, the existing literature aims at providing guidance for practitioners
who have to define anti-counterfeiting strategies. Recommendations, however, are
mainly based on observations of established practice and are only rarely directly
derived from the characteristics of the counterfeit market. An understanding of the
motives, production settings, strengths and weaknesses of the illicit actors would
benefit the licit stakeholder when defining anti-counterfeiting measures. Moreover,
performance measures of anti-counterfeiting activities could help to identify, select,
and improve successful practices.
The emergence
of counterfeit
Kaikati and LaGarce 1980 Discussion of different forms of brand piracy. Strategies to trade
prevent counterfeiting. Outline of international laws to
protect trademarks
Harvey and Ronkainen 1985 Discussion of potential ways illicit actors can obtain
classified information which enables them to produce 339
estimates
Harvey 1987 Potential ways illicit actors can obtain confidential
information. Potential cooperate responses to counterfeit
occurrences
Harvey 1988 Discussion of an organizational structure for a “Counterfeit
Prevention Task Force” involving employees from
marketing, research, and development
Bush et al. 1989 Survey among 103 companies. Discussion of the
implications of the 1984 Trademark Counterfeiting Act and
company-internal actions
Olsen and Granzin 1992 Depiction of how manufacturers can establish a
relationship with their distributors to gain support in
fighting illicit trade. Interviews with five retailers from the
automotive industry to conceptualize a structural equation
model
Olsen and Granzin 1993 Investigation of the influence of dependence, control,
channel conflict, and satisfaction on a dealer’s willingness
to help a manufacturer combat counterfeiting. Findings are
that manufacturers can engender cooperativeness by
nurturing satisfaction and dependence in
manufacturer-dealer relationships
Chaudhry and Walsh 1996 Overview of the legal framework to avert counterfeit trade,
reviews anti-counterfeiting strategies (termed “warning”,
“withdrawal”, “prosecution”, “awareness”, “assertion”)
Nill and Shultz 1996 Discussion of ethical decision making, moral reasoning,
and purchase intentions in the context of counterfeit goods
Shultz and Saporito 1996 Discussion of strategies to respond to counterfeit producers
Simone 1999 Discussion of the difficulties for brand owners to pursue
remedies against infringers in China
Krechevsky 2000 Proposal of practical anti-counterfeiting measures for
affected enterprises
Jacobs et al. 2001 Discussion of strategies to deal with counterfeit trade
alcoholic beverages
Trainer 2002 Discussion of the hurdles of brand owners who, despite an
impressive number of IP laws in China, often face reluctant
prosecutors and ill-trained judiciary
Hung 2003 Discussion of the roots of counterfeit trade in China.
Reasons are the strong domestic demand for imitation
products and the patronage of the government
Yang et al. 2004 Elaboration of ten cooperate actions to avert counterfeit Table VI.
trade Managerial guidelines to
(continued) avert counterfeit trade
43,3/4
Bach 2004 Discussion of the implications of music piracy of
consumers and the control of media companies through
electronic monitoring. The point of view is expressed that
both extreme scenarios (total devaluation of intellectual
property vs. total control of the right holders) are unlikely
340 and that a careful discourse of policy makers is necessary
in order to find a suitable intermediate position
Javorcik 2004 Investigation of the relationship of the degree of
enforcement of IPR on the composition of foreign direct
investment. A lack of IPR protection deters investors from
undertaking local production but encourages them to focus
on distribution of imported products
Chaudhry et al. 2005 Investigation of how managers conceptualize the
intellectual property environment; how the intellectual
property rights environment affects the market entry
decision; what anti-counterfeiting strategies are frequently
used; and how effective each tactic is in the host country
market
Sonmez and Yang 2005 Single case study based on Manchester United Football
Club’s efforts to establish its trademark licensing and to
deal with counterfeit products in China
Chaudhry 2006 Summary of statistics on product categories and countries
of origin of counterfeit goods as well as surveys on the
attitude of consumers towards counterfeit articles.
Overview on current enforcement initiatives in the EU and
the USA
Clark 2006 Outline of selected tactics of counterfeit producers to
disguise their operations, changes companies should make,
and issues the Chinese government should address
Wald and Holleran 2007 Discussion of a gray market and diversion problem at
Table VI. Johnson & Johnson’s Medical Device & Diagnostics in 2001
Discussion
Research gaps
Though counterfeit trade is of considerable importance for numerous stakeholders, the
existing body of knowledge seems to reflect only partially the complexity and the
potential threats of the illicit market. The literature review shows that research deficits
exist in at least four areas. First, there is limited academic work that deals with the
general impact of counterfeit trade on affected enterprises and brands. This includes
measurement techniques of the share of counterfeit goods within a market under study,
but also substitution among genuine and counterfeit goods as well as changes on the
perception of brands. Moreover, no work has been published that extends research on
quality management by issues related to counterfeit trade, despite the frequent
occurrence of deceptive imitations on intermediate markets.
Second, the mechanisms of the supply side of the counterfeit market are only
vaguely understood. Research gaps include knowledge on production settings, sales
tactics, and growth strategies of illicit producers. Counterfeit producers often resemble
complex organizations; they are likely to base their operations upon at least an implicit
risk-return calculation and on some sort of future planning or exit strategy. In fact,
observations of the illicit market indicate that some actors follow concise strategies The emergence
which are reflected in a number of typical production settings. These phenomena have of counterfeit
not yet been investigated in detail, though a differentiated view may ease further
research on this significant form of organization. trade
Third, several aspects of counterfeit demand require further research. To date, the
studies investigating the consumer’s reasoning for and against knowingly purchasing
counterfeit goods do not reflect the diversity of counterfeits with respect to quality nor 341
the product type dependency. Prices paid for such goods are mostly unknown.
Consumer choice in markets with counterfeits, genuine branded products, and generic
products have not yet been systematically investigated. No single theory appears to
sufficiently capture the abovementioned aspects.
Fourth, the influence of counterfeiting activities on emerging markets has not yet
been systematically addressed. In selected economies counterfeit production
constitutes a significant source of income, may foster learning effects among illicit
competitors and, furthermore, may influence the formation of brands and the design of
competing regional brands. A better understanding is of interest for both economics
and management research.
Managerial implications
Existing anti-counterfeiting measures, including organizational and technological
approaches, have not confined the recent growth of the counterfeit market. In fact, the
literature on the phenomenon provides very little guidance for practitioners. The
above-mentioned research deficits directly translate into open issues with respect to
managerial countermeasures:
.
Evaluation of the counterfeit market. Estimating the extent of counterfeit trade
appears to be a major challenge. Hardly any related trustworthy statistics exist.
Even the often-cited and now widely accepted numbers provided by the OECD
are highly questionable. Estimates of this kind may prove helpful to stress the
importance of the topic, but are not sufficient as an input for detailed impact
analyses. In fact, companies have no reasonable estimates on the financial
implications of counterfeit articles and the influences of counterfeit trade on
brand loyalty, brand awareness, and the perception of quality. Important
side-effects of counterfeit production, such as the learning effects among illicit
actors and the possibility that these producers may turn into licit competitors in
the future, are not considered in the literature. However, without substantiated
estimates concerning the market volume of counterfeit articles and suitable
methodologies to translate these numbers into estimates of loss of revenue and
goodwill, decisions upon investments in countermeasures are likely to be based
on a “gut feeling” rather than on a solid return on investment calculation. Given
these constraints, a substantiated prioritization with respect to selected
geographic markets is difficult. These deficiencies are likely to constrict the
development and improvement of efficient monitoring, prevention, and reaction
measures.
.
The strategies and production settings of illicit actors. The development of
anti-counterfeiting measures requires some knowledge of the current situation of
the illicit market (e.g. current production locations and import routes, the quality
of counterfeit products, etc.), as well as predictions about the future behavior of
EJM the illicit actors. Reducing their intentions to “just realizing quick profits”
43,3/4 appears to be oversimplified. In fact, a differentiation of the counterfeiters’
strategies gives rise to distinctive production capabilities, shipment and selling
tactics – and shows characteristic vulnerabilities that brand owners can
leverage. Companies still seem to pay little attention to these drivers of the
counterfeit market and often reduce the phenomenon to an opportunistic act
342 rather than explaining it as a result of an entrepreneurial consideration.
.
The role of the consumer. The limited awareness of deceptive counterfeits and
the willingness to purchase imitations of luxury goods are both important
enablers of counterfeit trade. Consequently, consumer education as well as
shaping demand for counterfeits constitutes a major leverage to confine illicit
market activities. This, however, requires some knowledge about the consumers’
reasoning for and against purchasing such goods. In this domain, practitioners
can clearly benefit from the academic literature. However, the impact of such
campaigns, not only on demand but also on potential confusion among
consumers who would question the brand as a sign of quality when being made
aware of the existence of counterfeits, requires further investigation.
Summary and outlook

Trade in counterfeit goods constitutes a substantial threat to various industries.
Against this background, this contribution provides an extensive literature review to
shed light on the economic principles of counterfeit trade and the underlying illicit
supply chains.
Our analysis has shown that – though governments as well as management have
clearly identified the problem – research around the problems of counterfeit trade
constitutes a very young research stream. So far, knowledge on the mechanisms and
structure of the illicit market, the tactics of counterfeit producers, consumer behavior
with respect to imitation products and the financial impact on individual companies is
still rather limited. The diversity of the counterfeit phenomenon underlines the need for
further research in this area; this contribution may serve as a starting point for a future
research agenda. From a practitioner’s perspective, it may be helpful for understanding
the relevant influence factors and for the development of company-specific measures
for fighting product piracy.
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About the authors

Thorsten Staake works as a Postdoctoral Fellow at the Department Management, Technology,
and Economics (D-MTEC), ETH Zurich. His interests include trade in markets with counterfeit
goods and supply chain security. Before joining the D-MTEC, Dr Staake spent one year as a
Visiting Researcher at the Auto-ID Lab at the Massachusetts Institute of Technology and
worked for two years at the Institute of Technology Management at the University of St Gallen.
During this time, he set up the Anti-Counterfeiting Special Interest Group with several leading
companies and acquired funding from the European Commission for the three-year research
project SToP (“Stop Tampering of Products”). Thorsten finished his doctoral studies on business
administration at the University of St Gallen. He holds a MSc in electrical engineering from
Worcester Polytechnic Institute, Massachusetts, USA, and an Engineering Diploma from
Darmstadt University of Technology. During his studies he received scholarships from the
Center for Interdisciplinary Studies in Technology and the Swiss National Science Foundation,
and worked at Infineon Technologies, Clariant, and LSD GmbH.
Frédéric Thiesse is an Assistant Professor at the ITEM-HSG. He holds a diploma degree in
Management Information Systems from the University of Mannheim, Germany, as well as a
doctoral degree in Business Administration with highest distinction from the University of St
Gallen. He worked as Research Assistant to Professor Hubert Österle at the Institute of
Information Management at the University of St Gallen from 1997 to 2000. From 2000 to 2003 he
worked as the leader of software and methodology development at Intellion AG, a St Gallen
based technology start-up. Since September 2003, Dr Thiesse has been Project Manager of the
M-Lab, an industry-funded consortial project, and Associate Director of the Auto-ID Lab St
Gallen. He is the author of several academic papers in the areas of computer science, information
systems, and operations research. Besides papers at major international conferences, his
publication list includes various journal contributions, for example in the International Journal of
Production Economics, the Journal of Strategic Information Systems, and the IEEE Pervasive
Computing Magazine. Frédéric Thiesse is the corresponding author and can be contacted at:
frederic.thiesse@unisg.ch
Elgar Fleisch is Director of the Institute of Technology Management at the University of St The emergence
Gallen (ITEM-HSG) and Professor of Information Management at the Department of
Management, Technology, and Economics at the ETH Zurich since 2002. After graduating of counterfeit
from the Institution of Higher Technical Education in Engineering, Elgar Fleisch studied trade
Business Administration and Computer Science at the University of Vienna and wrote his PhD
thesis at the Vienna University of Economics and Business Administration and the Institute for
Advanced Studies in the area of artificial intelligence in production scheduling. In 1994 Elgar
Fleisch started his work at the University of St Gallen, focusing on “business networking”. In 349
1996-1997 he founded and worked at IMG Americas, Inc. in Philadelphia, USA as CEO. In 2000
he was accepted as Assistant Professor at the University of St Gallen. Today Elgar Fleisch
conducts research in the areas of “business aspects of ubiquitous computing” and “management
of industrial services”. Together with Professor Friedemann Mattern of the ETH Zurich, he leads
the Mobile & Ubiquitous Computing Lab (M-Lab) and co-chairs the international Auto-ID Lab
Network.
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