The NYT editorial board warns us today about the $200 billion in "pirated or counterfeited goods" that enter the United States each year. I have no idea what they are talking about. There is an extremely important conceptual difference between counterfeit products and unauthorized copies, however much the protectionists at the New York Times might like to obscure it. A true counterfeit good is intended to deceive the consumer. This would be an article of clothing supposedly by a famous designer, an original painting by a famous artist, or fake currency, all of which are intended to capture a far higher price in the market because the consumer is misled about their identity. True counterfeit items sell for approximately the same price as the real thing because people think that they are the real thing. On the other hand, there are unauthorized copies which sell for prices that are far below the price for which the "real thing" would sell. This includes handbags and articles of clothing that may carry a designer label, but often sell for a small fraction of the designer label price. It is almost inconceivable that consumers don't know that they are not getting the designer product. Similarly, people often buy unauthorized versions of patented drugs because they are far less expensive than the patented version. They do this to save money; they know that they are not getting the drug produced by the patent holder. The same applies to copies of recorded movies and music, that may sell for a fraction of the copyrighted version or be passed along for free over the Internet. This distinction is essential because with true counterfeits, the consumer is the victim. In the case of unauthorized copies, the victim is the company to whom the government has granted a monopoly over the sale of the item in question. The consumer is a beneficiary when they purchase an unauthorized copy at a price that is far lower than the price of the authorized version. For this reason, consumers are not likely to cooperate in efforts to stamp out the trade in authorized copies. The government's efforts to crack down on this trade is likely to meet the same fate as the Soviet Union's effort to stamp out the black market trade in blue jeans, it didn't work. There is an economic argument for the sort of protectionism advocated by the NYT editorial board, but the underlying question is what is the most efficient way to provide incentives for creativity and innovation. Appeals to consumers to act against their own interest are just silly.
--Dean Baker
