Analysis of non-deceptive copycatting

This paper examines the impact of non-deceptive copycats considering the authentic firm’s effort in fighting copycats. We study how non-deceptive copycatting affects the authentic firm’s quality investment, demand, profitability, and consumer welfare. We reveal that, in contrast to the benchmarking scenario of no copycatting, non-deceptive copycats do not necessarily reduce the quality and market share of the genuine product, depending on the extent of copycat imitation and the quality investment efficiency of the genuine firm. Closer copycat imitation can either enhance or reduce consumer and social welfare, contingent upon the extent of copycat imitation and the quality investment efficiency of the genuine product. Furthermore, the authentic firm benefits from the presence of such copycats with sufficiently efficient anti-copycat effort and copycat penalty. In addition, we demonstrate that the genuine firm can drive copycat products out of the market with sufficiently efficient brand quality investment and low imitability, which further differentiates the quality between the genuine product and the copycat, and thus shrinks the demand for the copycat product. Finally, the main model is also generalised to study multiple scenarios: Stackelberg competition, two-feature copycat imitation, and with different production costs.