What a surprisingly awesome Sunday afternoon! Professor Hubert Pun from Ivey Business School graced SUFE with his presence and insights, discussing his research: “Counterfeiting and Traceability in Secondary Markets.”
Certificates of the authenticity of luxury goods aren’t necessarily real, especially on the secondary market. Counterfeiters are adept at creating fakes that are often sold at prices comparable to genuine products. And even, sometimes people knowingly buy fake items, like knock-off LV bags, just for the logo.
However, luxury brands such as Chow Tai Fook and LVMH are now employing blockchain technology to infallibly certify their products. This technology ensures that every item, from luxury watches to diamonds, has a traceable and tamper-proof digital history. For instance, Chow Tai Fook is using blockchain-based QR codes to verify the authenticity of their diamonds.
Professor Pun’s paper presents a market model involving original manufacturers, consumers, counterfeit sellers, and legitimate second-hand mediators. The market dynamics are explored through a two-period game. In the first period, consumers buy true products from the original manufacturer. In the second period, the secondary market comes into play, with both genuine and counterfeit products being resold.
The secondary market is where the blockchain technology wields its power. Manufaturers can choose to enable blockchain-powered verification, letting consumers become shrewd detectives, separating the faux from the real, choosing what maximizes their utility. Absent this, counterfeits could masquerade as genuine by pricing themselves at the same level as the authentic products.
However, the equilibrium results are a plot twist. Blockchain transparency doesn’t always benefit everyone. In certain scenarios, like when counterfeit products almost mirror real luxury goods in value, the good guys (truthful second-hand mediators) might find themselves worse off. The increased competition spurred by consumer discernment can hurt original manufacturers and lower prices, which impacts the mediators.
This research brilliantly intertwines operations management (OM) and game theory economics. It’s reminiscent of information design, likening blockchain verification to providing perfect information. Classic information design result yields, most of the time, perfect information won’t be the best solution, and that certain degree of obfucating the information would be beneficial to at least some parties in the game. And this remarkable insight works here as well.
What captivated me about this research is how its elegant mathematical modeling deeply rooted in real-world scenarios. Growing up in Guangzhou and Hong Kong, I’ve seen the secondary luxury market firsthand, and Professor Pun’s abstractions hit close to home. His presentation was nothing short of spectacular, a testament to his popularity in MBA classrooms across FDU and Xiamen University.
The talk concluded with an insightful Q&A session. When asked about his inspiration, Professor Pun emphasized engaging with industry insiders and immersing himself in the subject. It’s a reminder that great ideas are born from dedication.
This fruitful afternoon left me grateful for my bestie’s reminder about the talk. Our casual exchange:
“Hey, any plans?”
“Heading to a talk this afternoon. Join me?”
“Let me check.”
…led to an afternoon of enlightening discoveries. Indeed, sometimes the best plans are the ones you barely plan for.