Converting Counterfeiters in Emerging Markets to Authorized Suppliers: A New Anti-Counterfeiting Measure.

The article focuses on a game-theoretic analysis of converting counterfeiters producing high-quality "super fakes" in emerging markets into authorized overseas suppliers as an anti-counterfeiting strategy. It identifies three main sourcing strategies for a brand-name firm—single sourcing from a home supplier, dual sourcing from both home and converted overseas suppliers, and single sourcing from the overseas supplier—and examines how factors such as cost differentials, law enforcement penalties, and consumer quality perceptions influence these strategies and the likelihood of counterfeit sales. The study finds that while conversion can reduce production costs and mitigate counterfeit risks, especially under dual sourcing, it does not inherently prevent counterfeiting unless penalties are sufficiently stringent. Additionally, converting counterfeiters may reduce consumer surplus and does not always improve social welfare, benefiting society primarily when penalties or cost advantages are high. Extensions of the model consider sequential contract offerings and endogenous counterfeit pricing, reinforcing the strategic role of wholesale contracts in managing counterfeit risks.