An Economic Analysis of Intellectual Property Rights Infringement

This chapter explains the importance of considerations of IPR infringement in developing and emerging countries and the necessity of Law and Economics incorporating Industrial Economics into these analyses. Next, a three-step method of field research is explained: first, purchasing illicit goods as a customer in the marketplace; second, conducting interviews with retailers, producers, and consumers; and third, collecting samples from consumers. Main results of the following chapters are summarized, and finally, the possible criticism that the methodology is biased towards an economic perspective is discussed. Accurate legal consideration is important when addressing cases in developed countries. However, in developing countries, with little legal enforcement, addressing IPR infringement requires that we understand the economic reasoning behind phenomena causing it.

This chapter considers piracy in the music industry. After identifying general factors influencing music piracy, using facts obtained by field research, I analyse reasons why P2P file-sharing was rare in Vietnam and show that piracy worked as necessary free promotion of live performance for most musicians. I also provide a theoretical analysis considering the condition of profit maximization using piracy as promotion. Furthermore, using samples collected from college students in Japan, China, Vietnam, and South Korea, I consider how music piracy is impacted by transaction costs: ISP fees, risk of apprehension, time to download files, etc. Each country has unique characteristics which can be explained by its transaction costs. I explain these characteristics by using the Cobb–Douglas utility function.

This chapter considers fake motorcycle spare parts whose value is determined by duration and quality. A bad image about domestic products, which is often present in developing countries, causes consumers to distrust domestic brand names. That is a major reason why fake packaging was pervasive in Vietnam. I first explain the fact, obtained by field research, that repairpersons have incentives not only to use fake spare parts but also to mitigate incomplete consumer information about quality. I then analyse this phenomenon in a theoretical model, indicating inconsistent incentives concerning social welfare and consumers’ surpluses. I also consider a counterfeiting game between counterfeiters producing products of differing quality and show that a counterfeiter producing second-tier products does not always prefer no enforcement, while a counterfeiter producing lowest quality products always prefers it.

This chapter considers quasi-credence and similar foods in Southeast Asian countries. In a market of foreign foods (quasi-credence foods) where domestic consumers cannot distinguish counterfeits from originals even after eating them, domestic authorities do not have an incentive for enforcement if originals are not produced in the country, that is, if profits of an original producer do not contribute to domestic social welfare. An incentive for strict enforcement exists only if originals are produced in the country. I also consider a market of similar processed foods, where judgement about design right infringement is vague. Some companies sue, and others do not respond to the infringement. I consider this phenomenon by using a model of monopolistic competition and prove that the similarity can create positive mutual externalities and benefit all producers. This outcome parallels a form of biological mimicry (Müllerian mimicry).

This chapter describes several suggestive scenes that I experienced during field research. They are not directly related to my discussions in the previous chapters, but indicate that tackling intellectual property rights (IPR) infringement involves a wide range of considerations, and that researchers in developed countries are likely to misunderstand real situations of counterfeit trade.