Free The Knockoff Economy by Christopher Sprigman Kal Raustiala

* The BLS is the federal agency that, among other things, assembles the official measure of US inflation. To do this, BLS employees collect price data every month on millions of goods and services.Among the data they collect are many thousands of apparel prices. We looked at these data to see if the changes over time in the prices of apparel suggest any significant effect on elite designers from the knockoffs that often imitate high-end looks at lower prices.
    To do this, we collected data on the prices of women’s dresses from 1998 to the present. We then divided the dresses in this dataset into 10 categories, or deciles, ranging from the cheapest 10% of women’s dresses, such as the stuff on the racks at Walmart, to the most expensive 10%, such as Prouenza Schouler’s latest design. 63 Now, take a look at the graph.

    FIGURE 1.1 Average Prices-Women’s Dresses.
    What you see is price stability over the entire period for every decile pictured—except for one—the top decile—that is, the most expensive women’s dresses. What happened there? The average price of the most expensive 10% of women’s dresses went up, substantially. The top decile of dresses increased in price by over 250%. Even adjusted for inflation, the prices of the top-end dresses still almost doubled. But everything else either stood still, or even got a bit more affordable (adjusted for inflation).
    So what does this mean? Virtually all knockoffs are cheaper than the high-end garments they imitate. And if a substantial number of consumerswho would have purchased the original bought the knockoff instead, we would expect to see that competition have an effect on the prices of those high-end garments. In short, competition from knockoffs ought to depress the prices of originals, just as greater supply generally lowers prices. But that doesn’t appear to be the case in fashion. The high-end items are the only ones that have any price growth during the period—and the price growth of this segment is very healthy indeed.
    The official federal data on prices, in other words, is consistent with what the piracy paradox predicts. Over the long term, knockoffs do not harm the industry as a whole. Rather, knockoffs are actually a key part of the industry’s success. More copies mean a faster fashion cycle; a faster cycle means more designs and more sales. Debut, diffusion, decline, death—and then it starts over again.
Anchoring
    The legal freedom to copy not only induces a faster fashion cycle; it also helps consumers figure out how to stay in style. In economic terms, copying lowers consumers’ information costs. It does this via a process we refer to as
anchoring.
Anchoring, like induced obsolescence, helps the fashion industry remain creative even in the face of extensive copying.
    Despite a flood of new designs available at any one time, identifiable trends eventually emerge and define a season’s style. What drives these trends is hard to untangle. Trends are not chosen by committee, nor are they simply the accreted musings of god-like designers, as Meryl Streep famously suggested in the “cerulean sweater” scene in
The Devil Wears Prada.
* Instead, trends evolve through an undirected process of copying, referencing, andreworking, coupled to communication with key retailers and commentary in the press. Insiders often talk of the convergence of designs as a reflection of the
zeitgeist.
Like a school of fish moving first this way and then that, designers follow the lead of other designers and tastemakers in a process that, while bewildering at times, results in the emergence of particular trends—as a quick look through any fashion magazine or blog will make clear.
    We wouldn’t perceive fashion change nearly as well without fashion trends. And every hot trend, almost by definition, involves some copying. A trend is a series of things that look alike and that are widely sold in the marketplace. Unless many designers magically arrive at the same