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E-commerce: a brand name’s curse

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Abstract

The reach of the Internet and the low cost of selling products online have made it possible for anybody to participate in the online market. In this paper, we argue that e-commerce can be a brand name’s curse due to information asymmetries and the existence of indifferent consumers, which perpetuate counterfeiting of branded products and the infringement of brand names in e-markets. Counterfeiting and infringement devalue the information capital embodied in a brand name, and ultimately reduce sales and profits of the brand name holders. While legal measures have been enacted to deal with intellectual property problems, we argue that market mechanisms are more efficient and more effective in dealing with brand name problems in e-markets. This is because rules in themselves often provide neither the slightest hint of where to look for violations, nor the incentive to convict violators. Market mechanisms such as information syndication, pricing of e-markets services, and vendor malpractice could be effective in deterring counterfeiting and brand name infringement. We hope our positional contribution will stir interest to look into this serious problem and extend our suggestions by developing concrete innovative mechanisms to safeguard online transactions.

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Notes

  1. Our usage of “vendor” refers to anybody selling products online, which may include established retailers, manufacturers engaged in direct sales, and partners and individuals selling products through other established web sites (e.g., Amazon.com’s value net partners). Furthermore, the recommendations suggested in this paper can be “scaled up” or “scaled down” depending on the size of the vendor. Also, the goods could be any goods that have brand equity. Higher priced goods tend to have greater counterfeiting and infringement issues.

  2. While counterfeiting is not limited to brand name products, we focus on branded products due to the added problem of snobbish or aspirational consumers for this category of products.

  3. Snobbish consumers are alternatively called “aspirational” consumers because they aspire to be of the status of true high-end consumers (i.e., true “elite” consumers).

  4. We thank an anonymous reviewer for relating this anecdote in the review package.

  5. Counterfeiting may benefit legitimate brand name owners if it enhances the “snob effect” (in which elite consumers seek products that distinguish themselves from non-elite consumers) and counterfeit products are noticeably inferior.

  6. Aspirational consumers are non-elite consumers who seek items that imitate elite consumers.

  7. For example, a customer left the following complaint: “I bought Sony memory sticks from emartcentral.com. When I got them they were clearly marked Sony. They didn’t work. After calling, the company formatted the sticks. That didn’t work so I called Sony. Sony told me to send in the sticks for an exchange. I did. They called me and told me that they were fakes. I contacted the company. They didn’t seem to care.” With rating mechanism in place, such complaints could be leveraged.

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Correspondence to Varun Grover.

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Otim, S., Grover, V. E-commerce: a brand name’s curse. Electron Markets 20, 147–160 (2010). https://doi.org/10.1007/s12525-010-0039-6

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