Status Signalling and Conspicuous Consumption: The Demand for Counterfeit Status Goods

The demand for counterfeit status goods presents an intriguing paradox between consumption of counterfeit goods and the desire to send status signals. I will examine the socio-economic factors that create this demand, starting with Veblen’s analysis of conspicuous consumption. I will then examine the concepts of relative wealth and the importance of reference groups and status which create the basis for the discussion of counterfeit status goods.

Furthermore, I will examine the production and characteristics of these illegally manufactured goods. The counterfeit status good allows the consumer to separate, or unbundle, status and functional qualities by providing a lower priced, lower functioning good with similar status qualities to the original. As for the consumer, characteristics of both the person and the good determine individual demand for counterfeit status goods. Price is the overriding factor in determining demand for counterfeits.

The process of deceptive signalling provides the answer to the paradox. Counterfeit status goods can serve as utility maximising status signals in deceptive status signalling. Faced with budget constraints, consumers can find it optimal to use counterfeit goods with high status qualities to deceptively enhance personal status. The process of this is demonstrated by Van Kempen’s four-stage deceptive status signalling model.

Finally, I will conclude with the aggregate and dynamic effects of the demand for counterfeit status goods.  Demand for legitimate status goods and their counterfeits are interrelated and can either be positively or negatively correlated.  In the long-run, demand for legitimate status goods is hampered by counterfeiting, hurting producers.  While counterfeit status goods can prove utility maximising for the individual, the status signalling game, deceptive or not, is a zero-sum game.