Network Effects in Fraud Markets
https://www.bbc.com/news/uk-england-36782724
This article discusses reasons that people buy fake designer items and talks about why the market for these items is flourishing. It talks about how while officially, the National Fraud Intelligence Bureau considers buying fake goods akin to aiding criminals, it has become increasingly acceptable to intentionally buy fake designer items. There are still cases in which customers of fake goods have been ripped off because they expect the real branded items, but nowadays, many people know the good they are buying are fake and they specifically shop for this. There is even an online shop that advertises the fact that its products use the same materials as the originals, but are not the originals. The article ends by mentioning that having more people benefit from intentionally buying fake goods means that policing these markets is not beneficial to the public. Therefore, this trend will continue to feed off of itself.
It relates to several topics that we covered in class. Most pertinently, it is possible to analyze the market for fake designer items in terms of positive and negative network effects. For instance, as there are more sellers of fake designer items, there is less of a payoff for each additional seller to join the market because people’s expectation that the good is real is lower, so they will be willing to pay less. However, once you pass a certain threshold, and having knockoff accessories is sufficiently common, people begin to want to buy specifically the fake versions, which is a trend mentioned in the article. Past this threshold, there is a positive network effect due to having more sellers in the fake accessory market because the more ubiquitous these goods are, the more accepted they are, which creates more demand. Within the past several years, the market for fake designer goods has been growing with significant upward momentum. It’s interesting to think about the effects on each individual seller that led to this collective trend. When deciding to sell fake designer items, potential sellers have to weight the benefits of gaining more money per item due the low cost of manufacturing with the cost of possibly being caught by the police. Initially, the more sellers, the less incentive each additional potential seller has to join the market because having more sellers reduces the profit of each one and increases the risk of being caught. However, it seems that we have passed a point in which having more sellers in this market is actually creating a higher incentive for potential sellers because fake designers items are becoming more widely recognized as acceptable purchases.