Be Your Own Counterfeiter

One of the stories that was circulating through CNN's news coverage this weekend (but which may have now been crowded out by swine flu, on which more later), was a major bust of counterfeit goods in Brooklyn, New York. Authorities had discovered a storage center with room after room full of the fake items you see on city sidewalks, including "Air Obamas" -- Nike Airs with the image of the president on them. These, in particular, seemed to irk the Brooklyn DA.

In speaking to the assembled reporters he made the point that the public continued to be outraged by this business. My astute wife responded by saying that of course the public was not at all outraged by it, but enjoyed buying knock off Marc Jacobs bags, and that the people who were actually upset were the producers of the real products.

Which made me wonder why they would be upset about this. For many of these products, the overlap between consumers of real products and fake is quite small. Knock offs are significantly cheaper than the real deal; a designer bag that sells for $800 in a department store might have a sidewalk fake counterpart that goes for $50. It's hard to imagine that these products cost them sales (and they may indirectly create sales for the designers, by improving brand awareness and creating aspirational buyers).

This looks to me like a missed opportunity for price discrimination. To put it another way, why don't designers sell their own knock offs? Even if they couldn't put other counterfeiters out of business, they'd at least capture some share of the revenue. And while perhaps the designers aren't all that interested in investing in such a low margin business, one would think they'd at least consider licensing someone to legally produce knock offs. That looks to me like big bills left on the sidewalk.

The trick, I think, would be to produce authentic knock offs. They couldn't be too good, or the value of the originals would be risked. Firms would have to aim to replicate real counterfeiter craftsmanship, which might be harder than you'd expect.