Counterfeiting and an Optimal Monitoring Policy

This paper studies the impact of adopting a monitoring system on counterfeiting, in which a criterion to minimize welfare losses due to counterfeiting is provided. If the degree to which the genuine product is imitated (hence the imitation rate) is not high, then counterfeit products might be allowed to exist in such a market. For the case of a high imitation rate, the use of a counterfeit monitoring regime with an optimal counterfeit-monitoring rate is the best policy. If the duration of intellectual property protection is set as infinite, then a higher monitoring rate corresponds to a narrower protection scope. Finally, the enforcement of the laws of intellectual property rights should be flexible according to a products inherent attributes as pertaining to the difficulties at imitating the original products.JEL Classification: D42, K42, L43