Piracy versus monopoly in the market for conspicuous consumption

Economics

Speaker:Michael Mandler, Royal Holloway University of London
Date: Friday 4 October 2013
Time: 16.15 - 17.45
Location: Bateman Lecture Theatre, Building One, Streatham Campus

Further details

When luxury purchases signal buyers’ incomes, a monopoly provider of a luxury good can deliver the signals with greater efficiency than competitive providers. If new entrants sell counterfeit goods at competitive prices, consumers will have to buy larger quantities of luxury goods to transmit the same signal, thereby creating inefficiency. And new entrants will in fact cause competitive prices to prevail when they produce indistinguishable replicas of existing luxury goods. If new entrants are prohibited from producing exact copies, welfare performance can be better. We also find a trade-off among the goods that can serve as income signals: the goods that signal efficiently display a large gap between between marginal cost and the price a monopoly charges, but the same goods offer the greatest rewards to counterfeiting.