Consignment with revenue sharing contracting in a marketplace with deceptive counterfeits

This paper develops a game-theoretical framework to analyze anticounterfeit efforts in a supply chain consisting of an authentic manufacturer, a counterfeit manufacturer, and an online marketplace retailer. It is assumed that consumers are ethical, and counterfeits are deceptive. The retailer balances the revenue from both authentic goods and counterfeits against the cost of combating counterfeits under a consignment contract with revenue sharing, especially in scenarios of uncertain demand. Initially, we establish a base model where the retailer is solely responsible for anti-counterfeit efforts. We find that the optimal combat level decreases with demand uncertainty and increases with price elasticity. Furthermore, when consumers harbour increased aversion towards the marketplace due to counterfeit concerns, it proves beneficial to elevate the combat level to bolster consumer trust. Additionally, we explore two joint combat models: one where the online retailer spearheads the combat, and another where the authentic manufacturer takes the lead. We find that the optimal service level remains consistent across all three models. However, when the retailer leads the combat, it yields the (weakly) lowest revenue share for the retailer but results in the highest total combat level and stocking quantity.