The NYT ran a piece today on a growing tendency for producers of unauthorized copies of merchandise to copy less high end items. The piece uses the term "knockoff" and "counterfeit" interchangeably. In fact, there is a very important and fundamental difference.

A counterfeit item is intended to fool the buyer. Its sales price depends on the buyer believing that they are getting something they are not. By contrast, buyers of unauthorized copies that are not counterfeit understand that they are not purchasing the brand item.

This distinction is important because the buyer is not being ripped off when they buy a knockoff that is not a counterfeit. They are getting what they paid for. This means, among other things, that the buyer cannot be expected to cooperate in efforts to crack down on such sales. The buyer is benefiting like the seller. In the case of an actual counterfeit item, the buyer is being ripped off and can be expected to cooperate with efforts to clamp down on counterfeiters.

This distinction also would be useful in understanding the meaning of the unsourced assertion that: "the counterfeiting industry ... costs American businesses an estimated $200 billion a year." If this is the amount of lost business associated with actual counterfeits, then this would largely be a loss to the economy. People paid $200 billion for items that they did not actually receive.

However, if this represents someone's estimate (a source would be helpful) of the lost sales to business associated with unauthorized copies, then this figure could be consistent with a net gain to the economy. Consumers were able to buy products at lower prices -- often much lower prices -- than would have been possible without the copies. In this case the gains would likely dwarf the benefits from NAFTA or other trade agreements.

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