Question

Which of the following best explains why the company would invest millions of dollars per year to prevent the production and sale of imitation Louis Vuitton handbags?

A. To keep the supply on the market low because the company likes to pay its lawyers, to protect the brand's quality image, and because the company does not like free advertising.
B. The overall effect of advertising on economic efficiency is indeterminate since it leads to increased excess capacity but may also guide consumers to better decisions.
C. Positive, since it tends to lead to increased sales.
D. Negative, since it utilizes resources that could otherwise be used to expand production.

Answer 1

Louis Vuitton invests in anti-counterfeit measures to protect its brand's image and ensure market exclusivity, aligned with monopolistic competition principles, thus justifying the costs as an investment in the brand.

Step-by-step explanation:

The company would invest millions of dollars per year to prevent the production and sale of imitation Louis Vuitton handbags to maintain the brand's quality image and protect its intellectual property. Imitations can lead to brand dilution and could potentially damage the consumer perception of luxury and exclusivity that Louis Vuitton relies on. By combating counterfeits, the company ensures that the market supply of genuine products remains exclusive, which allows them to maintain high prices and, consequently, high profit margins.

This strategy ties into the monopolistic competition framework, where differentiation and advertising are crucial to a firm's success. The upkeep of the company's image justifies the high expense as it can be seen as an investment into the firm's long-term brand value and market positioning, rather than just a legal cost.

By preventing the production and sale of counterfeit products, the company ensures that consumers associate the brand with high-quality and luxury. This helps maintain the brand's reputation and trust among customers, which ultimately leads to increased sales and profitability.