Supply chain structure in a market with deceptive counterfeits

•Deceptive counterfeits lower the price and the sales of authentic products.•The general retailer will carry counterfeits as long as the quality is high enough.•A company can change its channel structure to mitigate the risk of counterfeits.•It may be optimal to sell through the general channel along with a certified one. Deceptive counterfeits differ from non-deceptive ones in that they are packaged and sold as authentic brand name products so that consumers may buy counterfeits unknowingly. When a distribution channel, referred to as the general channel, has been penetrated with deceptive counterfeits, a brand name company may need to restructure the way its products are distributed and rely on reliable channels such as certified stores or manufacturer-owned stores to guarantee 100% authenticity. In this paper, we first identify the conditions under which the general channel will carry deceptive counterfeits, and then analyze the optimal supply chain structure in the presence of counterfeits as well as by incorporating the wholesale price decisions, consumers’ risk attitude towards counterfeits and consumer loyalty towards the reliable stores. Our main finding is that the brand name company should continue to sell, sometimes exclusively, through the general channel despite deceptive counterfeiting under various conditions.