In the early weeks of the Covid-19 outbreak, most forms of in-person retail experienced a shock. While some were deemed inessential, and closed, others saw immediate runs on a small set of goods, certain food items, and perhaps most notably hand sanitizer, sanitizing wipes, and all forms of disposable face masks. At the same time internet shopping, in general, exploded beyond the point of supply chains’ capacity and infrastructure to perform functionally during shelter-in-place orders across the U.S. While brick and mortar stores quickly sold out of the same highly sought after items, internet retailers, and their supply chains in turn, became the leading source for essential “PPE” -Personal Protective Equipment (or “PPE”). Although this term was unfamiliar to most until a few months ago, it has moved from the lexicon of occupational safety in industrial, medical, and law enforcement settings to the truly “personal.” As such it has become the name for a set of items that speak urgently to the fears and grief of ordinary people.
With the pandemic outbreak and expert guidance on how to prevent it spreading coupled with the devastating loss of life it is completely understandable why the global demand soared for face masks, gloves, hand sanitizer, sprays, wipes, goggles, and face-shields purchased retail by private citizens. In this context, where personal safety is at risk, a new trend is manifesting itself in a burgeoning and lucrative market. In sort, a perfect storm has arisen for the market in 1.) Scarcity of essential products in the marketplace. 2.) Increased online shopping on platforms allowing third party-sellers because of imperative health concerns and 3.) The need of many isolated and out of work consumers to get necessities at reasonable prices or get them at all. In such conditions it is important to distinguish the important difference between actual counterfeits and products that just happen to be sold out of the price control and fixing schemes of mega brands and conglomerates. These circumstances have created a unique constellation of conditions that highlight the complex nature of “real” branded commodities in the US market.
The explosion of demand for PPE in online retail casts light onto the complexity of the supply chains which serve online retail shoppers more generally. The felt stakes of buying “real” PPE draw our attention to the uncertainty of “realness” of branded goods purchased online. In fact, the “realness” of retail goods is not a straightforward story about ‘genuine’ and ‘counterfeit’ (though it may be presented as such). Rather, online retail is served by a set of pathways of goods whose “realness” is not physical or functional properties, but properties of histories of circulation and of legal regimes (Appadurai, 1986). People who operate in this market, and those adjacent to it refer to these commodities – which function, but are not quite “real” in some sense – as “grey market” goods.
The existence of a grey market depends on the conditions under which multinational corporate brands operate. Under normal conditions, brand owners (like 3M) attempt to control pricing at different levels in various regions of the world to maximize profits and exploit differences in purchasing power parity. They have created opportunities for arbitrage further down the various supply chains in these regions. Trade naturally ensues between these supply chains via parallel channels, as products are diverted from one regional market to another all over the world in the so-called grey market. Take the “respirator face mask” as a case study. Among the most sought after PPE is the 3M brand, NIOSH approved N95 Mask, designed to filter very small particles from the air. Because Covid-19 is spread in airborne droplets, it seems sensible to consumers to spend on top quality masks, and due to the breakdown in retail markets, supply is nowhere near demand, and the normal equilibrium price no longer applies. This is a situation in which a lot of profit can be made for those with access to reasonable substitute goods. As retail and wholesale prices of the 3M N95 mask sky-rocketed, counterfeit 3M or knock-off copycat versions of the mask as well as trade in authentic 3M masks that come from alternate supply channels have flooded online retail marketplaces like Amazon and ebay.
It is useful to distinguish three different and distinct 3M N95 masks available to consumers in need in the current online retail market: 1.) The first type is “real,” a mask sold through the manufacturer’s authorized distributor for a given region. For example, 3M N95 masks purchased at a Home Depot in Kansas City. This type is the most “authentic” not because of any specific material quality, but because it has the verifiable provenance of being sold through authorized agents, wholesalers, and retailers such as Home Depot. However, this type is completely sold out everywhere and unavailable to customers due to breakdown in supply chains:
2.) The second type of mask being sold online is the true counterfeit or knock-off ersatz version. Some of these are a counterfeit 3M brand with visible and markedly different product quality and packaging and some of these just are just knock-offs 3M “style” N95. I am sure that these knock-offs do provide some protection as a face mask, but their certification as protecting against 95% of particulates and their NIOSH approval is likely not trustworthy and possibly forged:
3.) The third type of mask differs from the first in only one way: it lacks the provenance of type one masks. It was produced in the same factories and to the same specifications as masks of the first type, but is not sold by a licensed distributor. In this sense, the third type of mask is as genuine as the first type in its manufactured quality according to the strictest specifications mandated by 3M, only it was diverted from the “authorized” channels, bought and distributed by re-sellers. Other than the fact that it lacks the chain of sales approved by the brand owners, it is identical in quality and kind to the first type. Perhaps fortunately for both consumers and retailers alike, this third type is available for consumers to meet their PPE needs, offered by third-party sellers on platforms such as eBay and Alibaba:
Because of my own personal experience adjacent to the parallel trade and grey market retail space, I have watched both the explosion in sales of masks of types two and three with great interest. I have also followed press discussions of these goods, noting emergent discussions about “realness” and “fakeness” of goods, and the concerns they raise. Interestingly, many commentators erroneously conflate the “black market, ersatz” second type of mask with the “grey market, parallel traded” third type of mask.
How is it the case that the real counterfeits ersatz masks are conflated with masks that differ only from the “real” ones because they took a different route — ebay, not Home Depot — from the same producer to the consumer. In a recent article in the Atlanta Journal-Constitution (Berard, 2020) industry expert Sridhar Tayur, professor of operations management at the Tepper School of Business at Carnegie Mellon University in Pittsburgh discussed the problem of illicit brand name goods as “very, very, very hard to fight.” In so doing he distinguished only two kinds of goods, ‘real’ and ‘fake.’ He grouped both the grey market and the black market of outright counterfeit in explanations of so-called illicit supply chains. In the same article, the author mentions that the Department of Justice has committed to fight this problem by investigating and prosecuting Coronavirus related fraud. However, part of the reason these investigations are so difficult is that, while the definition of “real, licit” brand name goods (our type one) is clear, yet many cases under investigation involve parallel market trade goods (our type three). When type three grey market goods are sold, no fraud or counterfeit has occurred because the grey market is not the black market. As soon as they enter consumers’ hands, these goods are physically indistinguishable from their ‘licit’ cousins. The parallel trade goods simply do not have the provenance the brand owners would prefer.
In following posts in this series I will investigate how multiple coincidences in the present state of the market have drawn greater legal and popular attention to the confusing status of grey market goods and parallel supply chains.
Appadurai, A. (1986). The social life of things: Commodities in cultural perspective. Cambridge, UK: Cambridge University Press.
Berard, Y. (2020, April 15). Desperate for supplies, some hospitals turn to ‘gray market’. Retrieved April 30, 2020, from https://www.ajc.com/news/state–regional/desperate-for-supplies-some-hospitals-turn-grey-market/QsVC3wF2IUL7QhgYfncyEO/