Counterfeiting refers to the production and selling of cheap imitation of similar products or goods of brands of know and trust. Counterfeiting is mainly concerned with the issue of trademark infringement. It is highly profitable and the risks are mediocre. Counterfeiters have several advantages that have been called “economies of counterfeiting.” These include “free-rider” effects and economies of scale and scope. Counterfeiters can free ride on the creative and innovative efforts of legitimate companies’ technology and market development efforts. Product counterfeiters seek high profits by controlling expenses and seeking a competitive advantage. There are many features that shape the opportunity for product counterfeiting. The expansion of the global economy, along with the accessibility of the Internet, provides product counterfeiters with a firm foundation for operations. This is further fueled by consumer demand for goods they cannot afford (Shorenstein, 2013), and by counterfeiters taking advantage of environments that offer low-cost manufacturing opportunities and little interest in protecting intellectual property. Counterfeiters can bolster their welcome in such an environment by offering local value such as employment and tax revenues.  Securing and presenting as new scrap, returned, obsolete, excess, reconditioned materials are some options as they are usually less than manufacturing and shipping new products to the point of distribution.  Counterfeiters seek out distributors who look to maximize their profit by mixing less expensive counterfeit with the authentic products, which increases their overall profit for each shipment. At the retail level, savvy counterfeiters keep the cost of their product close to the genuine so as to not alert brand owners, law-enforcement officials, and sometimes consumers that the product is counterfeit. Counterfeit pharmaceuticals, which could contain incorrect and unsafe ingredients, or no or insufficient active ingredients, are thought to represent upwards of 15% of the world’s drug supply (World Health Organization, 2008).

Incentives for counterfeiting are created by the limited awareness consumers, law-enforcement officials, and even some brand owners have of this crime. The motivation behind counterfeiting covers various agendas: setting aside the goal of making profits, experts reported that counterfeiters don’t always have a criminal intention. For example, many firms use counterfeiting to close a technological gap with the longer-term aim of becoming legally operating competitors in their own right. In addition, most counterfeiters have cost advantages over their legal competitors due to lower reproduction costs, lower safety standards, tax savings and lower labour costs (if production is offshored). Counterfeiting is also exploited by governments as a well-directed instrument to harm (foreign) legally operating firms and to strengthen and protect local industries.

Counterfeits also take advantage of advances in technology, such as 3-D scanners and printers that enable inexpensive production of components, products and packages. Likewise, the internet offers a low-cost form of communication and marketing to the global customer that is simultaneously instant and anonymous. 

There is not a legal distinction between deceptive and no deceptive counterfeits—both are illegal and damage the trademark owner and result in other detrimental economic and social consequences. By comparing two types of counterfeiters – deceptive, so infiltrating an illicit (but complicit) distributor, or non-deceptive in an illicit channel, insights into the impact of anti-counterfeiting strategies on a brand-name company, a counterfeiter, and consumers are to be provided. Highlighting that the effectiveness of these strategies depends critically on whether a brand-name company faces a non-deceptive or deceptive counterfeiter. For example, by improving quality, the brand-name company can improve its expected profit against a non-deceptive counterfeiter when the counterfeiter steals an insignificant amount of brand value. However, the same strategy does not work well against the deceptive counterfeiter unless high quality facilitates the seizure of deceptive counterfeits significantly. Similarly, reducing price works well in combating the non-deceptive counterfeiter, but it could be ineffective against the deceptive counterfeiter. Moreover, the strategies that improve the profit of the brand-name company may benefit the counterfeiter inadvertently and even hurt consumer welfare. Therefore, trade-offs among different objectives in implementing anti-counterfeiting strategies should be carefully considered while looking out for ways to protect the brand name along with maximizing profits. The presence of counterfeits in the marketplace reduces sales and increases litigation, which inhibits profits. At the same time, it is necessary for brand owners to combat product counterfeiting through prevention, detection, investigation and enforcement. These costs, like the others, affect the bottom line. However, it is important to acknowledge that, like other risks, investment in preventing product counterfeiting can ultimately save the company far more than its cost while also protect the safety and well-being of its customers.

The more successful the brand is and the greater the demand for the product the more likely it is to be counterfeited, especially when there are few legitimate alternatives in the marketplace. Many of those in a position to identify and respond to counterfeits do not think to question the authenticity of the products or even know what to do if they suspect a product is not authentic. This makes allocating resources to the problem difficult. Moreover, would-be offenders are lured by the reality that counterfeiters generally face a low risk for detection, prosecution, or penalties Investigations are time-consuming and expensive, and, given the complexity of cases, not all are eventually caught and then charged criminally or sued civilly. Further, the penalty levied against those that are convicted or receive a ruling against them may not be as great as the damage caused. Collectively, these circumstances result in low deterrence.