ON THE USE OF OVERT ANTI-COUNTERFEITING TECHNOLOGIES

Abstract

MANY PHARMACEUTICAL COMPANIES USE OVERT ANTI-COUNTERFEITING TECHNOLOGIES (OACTS) TO FIGHT COUNTERFEITERS. I SHOW THAT THERE MAY BE AN INVERTED U-SHAPED RELATIONSHIP BETWEEN THE COMPLEXITY OF THE OACT AND THE MAGNITUDE OF COUNTERFEIT MEDICINE PURCHASES. ON THE ONE HAND, ADOPTING AN OACT IMPOSES A SIGNIFICANT ENTRY COST ON COUNTERFEITERS, CAUSING FEWER COUNTERFEITERS TO ENTER THE DUBIOUS SOURCE (A COUNTERFEITERS? ENTRY-DAMPENING EFFECT). ON THE OTHER HAND, MORE PATIENTS HEAD TO THIS DUBIOUS SOURCE RATHER THAN THE RELIABLE SOURCE OWING TO THE INCREASED CHANCE OF OBTAINING A GENUINE DRUG (A PATIENTS? DEMAND-ENHANCING EFFECT). WHEN THE SELECTED OACT IS SUFFICIENTLY COMPLEX TO REPLICATE, THE FORMER EFFECT OVERRIDES THE LATTER AND THUS THE PROBLEM OF COUNTERFEIT PURCHASING IS RELIEVED. HOWEVER, WHEN THE OACT IS NOT ADEQUATELY SOPHISTICATED, THE LATTER EFFECT MORE THAN OFFSETS THE FORMER. THIS LEADS TO AN ANTI-COUNTERFEITING TRAP: THE USE OF A RUDIMENTARY OACT MAY BEGET MORE COUNTERFEIT PURCHA