Design imitation in the fashion industry

This chapter deals with the imitation of fashion products, an issue that attracts considerable interest in practice. Copying of fashion originals is a major concern of designers and, in particular, their financial backers. Fashion firms are having a hard time fighting imitations, but legal sanctions are not easily implemented in this industry. We study an alternative strategy that has been used by designers. Instead of fighting the imitators in the courtroom, designers fight them in the market. The designer markets her products in two separate markets. Typically, there is a "high-class" market in which the products are sold in exclusive stores at high prices. Customers in this market seek exclusivity and their utility diminishes when they see an increasing number of copies around. Their perception of the brand tends to dilute which poses a serious threat to a fashion company. The second market is a "middle-class" market in which there are many more buyers, and the fashion firm competes directly with the imitators in this market. This market can be used to practice price discrimination, to sell off leftover inventories, and to get a spin-off from the design. This chapter models the decision problems of the fashion firm and the imitators as a two-period game in which firms make pricing decisions and decisions on when to introduce their products in the markets. In addition, the fashion firm decides how much effort to spend to increase its brand image in the two markets.