Selling on a marketplace with deceptive counterfeits: agency or wholesale

This paper examines a supply chain comprising an online marketplace retailer, an authentic manufacturer, and a counterfeit manufacturer. The counterfeit manufacturer sells its products through agency selling. The authentic manufacturer chooses between wholesaling and agency selling where the revenue share is stipulated by the retailer. I study how the presence of counterfeits and how a retailer's profit maximisation objectives impact the authentic manufacturer's choice of contracts, decisions, and profits. I find that when the number of committed consumers to authentic products is low, the cost of counterfeits is low, the perception of counterfeits among uncommitted consumers is high, and quality is cost-efficient, wholesaling tends to be a better choice for the authentic manufacturer. However, if the retailer factors in revenue from counterfeits, the role of wholesaling in ensuring authenticity may be significantly diminished.