Monday, December 20, 2010

Fake Purses, Part 2 -- Overstating The Economic Effect

I'm probably as pro-business as anybody, but I become a little annoyed when you hear about a raid in which 10,000 fake purses were seized, costing the real manufacturer $5 million in sales, based on a value of $500 per purse. The fallacy in this analysis is that it presumes everybody who bought one of these fake purses would have paid $500 for a real one if the fake one wasn't on the market. A recent article about the low cost, $2.50 bus line between Manhattan Chinatown and Flushing Chinatown included a side comment that virtually every female passenger on this working class bus sported a fake Louis Vuitton handbag. Are you telling me that if they couldn't have bought one of these fake Louies on Canal Street for $35 that they'd spring the $500 for the real one?

One legitimate gripe the manufacturers could have would be the potential dilution of their product. If every middle aged woman in impoverished Manhattan Chinatown sports an LV lookalike bag, the cachet of the original has been dimmed to some extent. But based on the prices that real LV or Coach or Chanel or other designer bags bring, this dilution doesn't appear to be significant.

An iffier proposition is the effect of piracy on media items such as DVD movies. The lack of substitutability of originals and fakes doesn't hold nearly as true, as these days the copies are nearly the equivalent to the original. Yes, there are people like me who would never pay the retail price of a DVD, so if I on occasion buy a $3 DVD movie copy, this is not a sale that would have otherwise would have been made for full retail. But between the quality of the copies and the smaller price gap, this kind of piracy has a more tangible effect on the original product.

I must say that fake DVD marketing has its own fascinating elements. In New York Chinatown, like purveyors of fake purses, sellers of pirated DVDs may walk by you whispering "DVD DVD." They are very portable, able to bag their wares and disappear quickly if necessary. Strangely on a visit to the Chinese suburbs of Toronto just three years ago, high quality duplicate DVDs were being openly sold in the Chinese malls at multiple locations. However, in a return visit to the same stores a couple of months ago, while $3 to $5 DVDs were still being peddled, they were all Chinese language titles. Nevertheless, the surreptitious trade does manage to live on. While strolling in downtown Toronto's Chinatown, I saw a Chinese guy standing in front of a door holding a placard that said "DVDs-3 for $10", though he had no merchandise with him. So I asked the guy (in broken Chinese) whether he had any English language DVDs and he immediately opened the door and led me inside, and down a hallway which led to a small multi-tenant retail area, and ushered me into a video store. Like the stores in the mall, all the display items were Chinese. But I asked about English DVDs, and the gal said yes, and gave me a notebook with photocopied DVD jackets of American movies. I was struck by how this is just like the way they sell purses on Canal Street these days.

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