Problem: Consumers often have difficulty distinguishing brand-name products from cheap knockoffs, especially when making purchases over the web. This raises interesting questions about pricing and consumer behavior.
Q1. Suppose that customers can distinguish between brand name products and their knockoffs and do not view brand name products and their knockoffs as imperfect substitutes; some consumers want to purchase only the brand name while others are unwilling to pay the prices charges by the brand name and are happy with a low-price knockoff. Does the presence of knockoffs in the market harm the brand name producers? Explain why or why not.
Q2. Suppose that customers cannot distinguish between brand name products and their knockoffs when making the purchase over the internet and do not view brand name products and their knockoffs as imperfect substitutes; some consumers want to purchase only the brand name while others are unwilling to pay the prices charges by the brand name and are happy with a low-price knockoff. Does the presence of knockoffs in the market harm the brand name producers? Explain why or why not.