Unlocking the Value of Counterfeits: Rethinking Pricing Strategies in the Luxury Fashion Industry

Abstract In the luxury industry, the presence of counterfeit goods is a common phenomenon. This paper establishes a two-period sales model to analyze the impact of counterfeits on the pricing strategies of luxury goods and aims to explore the potential positive effects of counterfeits on the operation of the luxury goods industry. The findings show that, in the absence of counterfeiters, the optimal price and profit in the second cycle of luxury goods are lower than in the first cycle. However, when counterfeiters enter the market, the optimal price in the second cycle is generally lower than in the first cycle, though the optimal profit in the second cycle may be higher. By comparing scenarios with and without counterfeiters, this study finds that both the optimal price and profit in the second cycle are higher in the presence of counterfeit luxury goods. Contrary to the traditional view, which posits that counterfeit luxury goods negatively affect brand value, this research suggests that counterfeits may not necessarily harm the long-term operation of luxury goods. Therefore, in managing luxury brands, a tailored approach to counterfeit goods is needed, as removing counterfeits from the market may not always be the best strategy.