Entry of Copycats of Luxury Brands

We develop a game-theoretic model to examine the entry of copycats and its implications by incorporating two salient features; these features are two product attributes, i.e., physical resemblance and product quality, and two consumer utilities, i.e., consumption utility and status utility. Our equilibrium analysis suggests that copycats with a high physical resemblance but low product quality are more likely to successfully enter the market by defying the deterrence of the incumbent. Furthermore, we show that higher quality can prevent the copycat from successfully entering the market. Finally, we show that the entry of copycats does not always improve consumer surplus and social welfare. In particular, when the quality of the copycat is sufficiently low, the loss in status utility from consumers of the incumbent product overshadows the small gain in consumption utility from buyers of the copycat, leading to an overall decrease in consumer surplus and social welfare.