Taming Counterfeit Markets with Consumer Information

Counterfeit products are a multi-billion-dollar industry whose proliferation is a pressing issue in many countries and particularly in the developing world. The growth of counterfeit trade is thought to have negative consequences that can lead sellers of high-quality products to leave the market and reduce consumer welfare. Moreover, a rampant counterfeit industry is likely to have negative societal effects by undermining tax collection and supporting illicit trade networks linked to organised crime that reduce trust in state institutions. In this project, Hsu and Wambugu will use an RCT to study two interventions that may address market frictions caused by information asymmetry in the context of markets for maize and bean seeds - important inputs in the production of staple crops in Western Kenya.

The first treatment will provide information to help consumers distinguish between low- and high-quality products. They will be instructed on how to identify markers of quality on packages and how to use private codes to identify genuine products via a centralised verification system. The researchers hypothesise that this treatment will increase the probability of detecting a counterfeit, leading to greater market share for high quality goods, with ambiguous effects on prices. The second treatment will provide information to help consumers report counterfeit products. They will be shown how to report an incident anonymously to the Anti-Counterfeit Authority, a corporate representative, an agricultural officer, or the Kenya Plant Health Inspectorate Service. Increasing the threat of enforcement of existing regulations could discipline sellers into providing higher-quality products.

As inputs into the production of staple crops, the product markets studied here are of intense policy interest with important implications for food security and rural livelihoods. This project will bring insight to both the efficacy and cost-effectiveness of additional farmer sensitisation (e.g. through
agricultural extension programmes) as well as the likely impacts of anti-counterfeiting policies already in place (e.g. quality marks provided by government certifying bodies, verification schemes to identify genuine products, and inspections to detect rogue sellers). To the extent that lessons from these products generalise, the project may have implications for policy concerning other product markets where information asymmetry and product quality are concerns.

Authors

Eric Hsu

University of California, Berkeley

Anne W. Wambugu

Strathmore Energy Research Centre