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Determinants of Consumer’s Willingness to Purchase Gray-Market

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Article  in  Journal of Business Ethics · May 2013

DOI: 10.1007/s10551-012-1358-7

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Determinants of Consumer’s Willingness to
Purchase Gray-Market Smartphones

Chun-Hsiung Liao & I -Yu Hsieh

Journal of Business Ethics

ISSN 0167-4544
Volume 114
Number 3

J Bus Ethics (2013) 114:409-424

DOI 10.1007/s10551-012-1358-7

1 23
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 Author's personal copy
J Bus Ethics (2013) 114:409–424
DOI 10.1007/s10551-012-1358-7
Determinants of Consumer’s Willingness to Purchase
Gray-Market Smartphones
Chun-Hsiung Liao • I-Yu Hsieh
Received: 14 December 2011 / Accepted: 14 May 2012 / Published online: 1 June 2012
Ó Springer Science+Business Media B.V. 2012
Abstract The study analyzes the influential factors of
consumers’ willingness to purchase gray-market smart-
phones by considering the model of novelty seeking, sta-
tus consumption, integrity, and perceived risk. Attitude
toward counterfeit is used as mediation in the model.
The causalities in the model of problematic willingness
of consumer to purchase gray-market smartphones are
hypothesized. A total sample of 350 respondents with 238
effective samples is collected by interviewing with ques-
tionnaires at the service counters of telecommunications
operators. Structure equation modeling (SEM) is adopted
in the analysis. Consumers’ attitude toward counterfeit
goods is found to be positively related to the willingness of
consumers to purchase gray-market smartphones, but per-
ceived risk is negatively related to consumers’ willingness
to purchase. As for personality constructs, integrity and
status consumption are found to be negatively related to
consumers’ attitude toward counterfeit goods, but novelty
seeking is positively related to the attitude. Further, man-
agerial implications for branded smartphone manufacturers
and telecommunications regulators are provided by the
research.
Keywords Gray-market smartphone  Willingness
to purchase  Attitude toward counterfeit goods 
Novelty seeking  Perceived risk
C.-H. Liao (&)  I.-Y. Hsieh
Institution of Telecommunications Management,
National Chen Kung University,
Tainan City 70101, Taiwan
e-mail: chliao@mail.ncku.edu.tw
Introduction
Gray-market smartphones (or named as ‘‘Shan-zhai’’
smartphones) are the mobile phones manufactured in China
that are not recognized nor licensed by government regu-
lators and do not carry quality certifications and network
entry permits. This market has been booming since China’s
government removed the policy of the approbation for
mobile phone manufacturing in 2007. Gray-market smart-
phones are the synonym for counterfeited, imitated and
innovated well-known and leading branded smartphones
(e.g., iPhone, HTC Touch Diamond) on the edge of vio-
lating intellectual right but are produced to meet the
demand of the masses. But these handsets also provide
extra useful functionalities such as dual subscriber identity
module cards, mobile TV, and replaceable battery as
compared to the genuine ones. Gray-market handsets are
very popular in China’s mobile market, accounting for
35 % of market share in 2009. Base on the survey of
iSuppli (2009), the shipments were 145 million in 2009 and
had a nearly 13 % market share in global handsets market,
with a sharp increase by 43.6 % as compared with the in
2008.1 Accordingly, Department of Homeland Security of
United States (2009) revealed that consumer electronics
was the second largest commodity seized for 12 % of all
intellectual property rights (IPR) seizures by value with an
increase of 50 % in 2009 as compared to in 2008.2
Picking up a genuine smartphone and connecting to the
Internet has become a commonly observed phenomenon.
These handsets have merged the functions of mobile
1
Gray-market handsets are expected to continuously grow to 190
million in 2011.
2
Footwear was the top commodity seized, accounting for 38 % of all
IPR seizures by value.
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410
services and computer services into one. With much
functionality (e.g., high performance processor, fast
accelerated graphics units, high quality touch panel, large
capacity memory and high pixels camera) embedded in
smartphones, consumers check email, browse Facebook,
read news, and watch streaming video online by the tiny
mobile devices held anytime and anywhere. Notebooks are
soon considered as heavy and redundant equipments to
them. Laugesen and Yuan (2010) attributed the success of
Apple’s iPhone to the five factors of user preference,
culture, innovative technology, fulfilling consumer needs,
and simplifying the technology. Product innovation is the
iPhone’s core competence with high functionality and
capability of producing a rich mobile Internet browsing
experience. iPhone simplifies the technology because it is
human-based. When using iPhone, users think the product
is easy to use. iPhone focuses on entertainment applications
and services rather than business applications, clearly
understanding and meeting the needs of their consumers.
Apple finds the cultural niches to fill different regions and
meets cultural preferences through software and content.
Further, smartphones could be implemented with applica-
tions software (Apps) of social networking (e.g., Facebook)
and interesting games (e.g., Angry Birds). Increasing
numbers of people hold fashionable smartphones in their
hands and scratch the touch panel with fingers back and
forth while having a couple of coffee in Starbucks, or
traveling on the mass rapid transit. According to Interna-
tional Data Corporation (IDC) (2011), the shipments of
mobile phone and smartphone kept growing in 2010 to
1,388.2 and 302.6 million units, respectively. In particular,
smartphone has the current market share of 21.8 % and
grows four times faster than the overall mobile phone
market.3
Possessing a smartphone has become the best choice in
the new era of mobile telecommunications with the sym-
bolization of vogue when consumers consider replacing
their old mobile phones. It stands for keeping them the
stylish and fashion trend. Consumers have the desire of
owning smartphones even though their mobile phones are
in good conditions or the versatile functionalities embed-
ded in smartphones are not needed. However, the price of
branded smartphones is much higher than feature phones.
Gentry el al. (2001) revealed that consumers in the
developing countries are sensitive to the price of products.
Gray-market smartphones counterfeit branded smartphones
with low prices and give the consumers who cannot afford
the cost of buying the branded smartphones a chance to
3
Smartphone market is booming in the year of 2010 with the remarkable
annual growth rate of 74.4 %. Among the top five smartphone
manufacturers, the annual smartphone sales growths of Samsung and
HTC in 2010 were 318.2 and 165.4 %, respectively.
123
C.-H. Liao, I.-Yu. Hsieh
possessing an Apple-like or HTC-like smartphones. Hence,
gray-market smartphones grasp the chance to grow and
gain the market share in China and in India. Yet, Belk
(1995) found that consumers are willing to pay for dis-
proportionate parts of their income just for status symbol-
ization, and Gentry et al. (2001) revealed that consumers
try to gain the status symbolization but in the form of
counterfeit. In sum, the consumers are fulfilled by the
possession of the ‘‘brand emblem’’ not the ‘‘product’’.
Gray-market smartphones are easily distinguished as non-
genuine ones due to sufficient knowledge of the general
public. Thus, owning a gray-market smartphone cannot
convey the spirit of the brand and symbolization derived by
owning luxury brands. Table 1 illustrates the differences in
the appearances and specifications between a gray-market
iPhone4 and an Apple iPhone4. In particular, gray-market
smartphones discredit the goodwill of the IPR holders and
are prohibited from selling in most countries. Consumer’s
purchase behavior with these commodities may be seen as
non-normative behavior and as supporting this illegal
transaction directly or indirectly.
Gray-market smartphones are the electronic commodi-
ties differing from counterfeit bags and polo shirts of
luxury brands. In particular, gray-market smartphones are
not manufactured with the strict standard of the interna-
tional mobile equipment identity (IMEI) code and are not
inspected by the government authority. The incidents of
unstable performances while using gray-market smart-
phones were reported in the news. For examples, the body
injuries caused by handset explosions, gender-switching
voice distortion, and considerable financial loss incurred
by sending short messages 10,000 times mistakenly. In
particular, malicious ‘‘toll creaming software’’ embedded
in the handset by gray-market smartphone manufacturers
and service content providers stealthily incurs the users
uncontrollable toll expenses (e.g., automatically making
collect calls, continuously sending wireless Internet traffic,
and downloading wallpapers/MP3 ringtones or inquiring
information without informing the users the costs of the
services). Gray-market smartphones are also found to have
more than ten times of the electromagnetic waves than
branded smartphones.4 The Department of Health in
Taiwan regulates that mobile phones have the value of
specific absorption rate (SAR) up to 2 W per kilogram of
users’ body (Zhu 2009).5 The uncertainties caused by these
incidents make consumers be suspected of the quality and
4
Source: CTS.News (2009) at http://news.cts.com.tw.
5
The value of SAR is a standard for evaluating how many watts per
kilogram of user’s body (W/kg) absorbs the radiation dosage resulting
from electromagnetic waves. The lower value of SAR means the less
absorption of radiation dosage. It is an important standard for examining
the safety of electromagnetic waves in the examining processes of new
mobile phone.
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Determinants of Purchasing Gray-Market Smartphones 411

Table 1 Illustrations of gray-market iPhone4 and Apple iPhone4

Gray-market iPhone4 Apple iPhone4

Appearance

Product dimensions/weights Variety 115.2 9 58.6 9 9.9 mm/137 g

Battery standby Up to 100–150 h Up to 300 h
Operating system Windows Mobile 6.5/iOS iOS
Main display resolution 480 9 800 Pixel 960 9 640 Pixel
Camera resolution (front-facing/back) 5.0 Megapixel/VGA 5.0 Megapixel/VGA
Bluetooth/Wi-Fi O/O O/O
Memory 32 GB Micro SD card 16 GB/32 GB flash memory
Price US$100 US$800
Source: Shenzhen Shopping Online (2010) and Apple (2010)

performance and impose themselves psychological pres-
sure and anxiety while using them. Nevertheless, the sell-
ing point of gray-market smartphones is the far cheaper
price as compared to the genuine counterparts.
The growth in the market of gray-market smartphone is
harmful to the health of the economy since it restricts the
growth of branded smartphones by discrediting the good-
will of the IPR holders. The malfunction risks of these
handsets without official strict inspections are another
important issue. The manufacture, import and sale of gray-
market smartphones are prohibited in Taiwan, India, Egypt
and Pakistan. Nevertheless, the market of gray-market
smartphones exists and keeps growing, and has the greatly
negative impact on global mobile phone market. Therefore,
the purchase behavior of gray-market smartphones is a
critical issue that needs to be analyzed.
Taiwan has played an important role in the global sup-
ply chain of smartphones manufacturing. In addition to the
Taiwan-based smartphone manufacturer, HTC, more than
half of the components within Apple’s iPhone are produced
by the technology companies in Taiwan. For examples,
iPhones’ touch panels are produced by TPK, lenses by
Largan Precision, batteries by Simplo Technology, and all
handsets are assembled by Foxconn Technology. Under-
standing the determinants of consumers’ willingness to
purchase gray-market smartphones would provide the
suggestions that intellectual property owners could utilize
to reduce unethical purchases of gray-market smartphones.
The phenomena of fast diffused gray-market smart-
phones have recently attracted the academia on the studies
of the business model, value chain, cost estimation, and
innovation. But few studies have concerned consumer’s
purchase behavior of information communication technol-
ogy (ICT) hardware, gray-market smartphones, or the
factors that influence consumer’s purchase intention and
willingness to pay for these handsets. This study intends to
explore the influential factors of consumer’s willingness to
purchase gray-market smartphones by considering the
model that includes the constructs of novelty seeking,
status consumption, integrity and perceived risk. Attitude
toward counterfeit is used as mediation in the model. The
steps used in this study to investigate the causalities
between each construct in the model are applicable. The
findings will provide us a better understanding of the fac-
tors influencing consumers’ willingness to purchase gray-
market smartphones. The results would provide branded
smartphones manufacturers managerial suggestions in the
development of effective marketing strategy and product
design, and help policy makers in the law legislation for
preventing from the purchase of these handsets and for
protecting the IPR holders.
Conceptual Development and Hypotheses
Willingness to Purchase Gray-Market Smartphones
Phau et al. (2009) used the construct of willingness to
purchase as surrogate of purchase intention and further
reinforced willingness to purchase as an indicator of actual

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412
purchase behavior. Willingness to purchase in the relation-
ship between attitude and behavior is influenced by the level
of effort needed to exercise the behavior (Bagozzi et al.
1990) and it is more effective than behavioral measure in
capturing consumer’s mind (Day 1969). Willingness to
purchase is highly correlated to actual behavior (Zeithaml
et al. 1996; Ajzen and Fishbein 1980; Oliver and Bearden
1985) and this relationship has been empirically tested in
ICT product (Yang and Jolly 2009) and service businesses
(e.g., e-commerce, green product) (Ramayah et al. 2002).
Hence, a consumer’s willingness to purchase a specific
product is a good predictor of actual purchase of the product.
Novelty Seeking
Novelty is referred as new experience, newness or
uniqueness (Crompton 1979; Petrick 2002). Novelty
seeking is defined as a central component of motivation
and acts differently in familiarity, and it is seen as a type of
internal drive or motivating force the individual is activated
to look for novel information (Pearson 1970; Hirschman
1980). Hirschman (1980) divided novel seeking into
inherent novelty seeking and actualized novelty seeking.
The former is viewed as the desire of the individual to seek
out novel stimuli and the latter represents the actual
behavior induced by the individual to acquire novel stim-
uli. Furthermore, a person who needs the change, variety
and intensity of stimulation may seek information per-
taining to adopt products and consumption for improving
his or her performance or satisfying his or her own desire.
This rationale for novelty seeking could lead consumer to
both seek information about and to the actual adoption of
new or unfamiliar products. Gray-market smartphones
deliver the users different experiences with the exactly
same looking and brand logo of branded phones (e.g., clone
phone: Nokia N95), the same looking but slightly different
brand logo of branded phones (e.g., imitation phone: iPh-
cne vs. iPhone), and the brand logo on the handsets even
though the brand does not offer such products, (e.g., fake
phone: LV phone). These frequently launching counterfeit
smartphones are usually the newest and the most attractive
in the market, but yet at very affordable prices. Thus, gray-
market smartphones would satisfy the curiosity of the
consumers with internal drive or motivating force to fre-
quently explore novel and creative products and services. It
is reasonable to believe that novelty seeking has a signifi-
cant and positive influence on consumers’ attitude toward
counterfeit. Namely, the higher extent of novelty seeking
consumers perceives the more positive attitude toward
counterfeit. Therefore,
H1 Novelty seeking is positively related to attitude
toward counterfeit goods.
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C.-H. Liao, I.-Yu. Hsieh
Integrity
Integrity is a central dimension in an individual’s trust-
worthiness and represents is his or her consideration of
ethical level and obedience to the law (Mayer et al. 1995;
Wang et al. 2005). It influences individual’s judgment
toward participating in or supporting unethical activities
(Steenhaut and van Kenhove 2006). Cordell et al. (1996)
revealed that consumers with more lawfully mind possess
more unfavorable attitude toward counterfeits and less
willingness to purchase them. Counterfeit purchase, though
not seen as a criminal activity, is an action indirectly
supporting illegal counterfeit production and transaction.
Thus, the buyers would be considered as advocating in
non-normative and illegal activities of intellectual property
right infringement. Consumers with ethical consideration
for and obedience to the law would never intend to act non-
normative behaviors that indirectly support such illegal
activities. It is reasonable to believe that integrity has a
negative influence on the attitude toward counterfeit goods.
Hence, a consumer with integrity is more negative attitude
toward counterfeit goods. Therefore,
H2 Integrity is negatively related to attitude toward
counterfeit goods.
Status Consumption
Eastman et al. (1999) defined status consumption as the
motivational process by which individuals strive to improve
their social standing through consuming products that sym-
bolize status both to themselves and to surrounding others.
Status consumption is not merely the purchase of prestigious
goods in order to display their wealth and prosperity (East-
man et al. 1999; O’Cass and McEwen 2004). Status con-
sumers wish to be considered as belonging to a higher social
class (Wee et al. 1995) and they are willing to pay premium
prices for goods that are perceived to convey status and
prestige (Chao and Schor 1998). Shukla (2010) addressed the
issue of status consumption among British and Indian con-
sumers, using the industry context of alcoholic beverages,
and found a significant link between brand and status con-
sumption. Advanced smartphones, such as iPhone, HTC, and
Blackberry are the examples of luxury goods used to sym-
bolize the social standing and vogue of individuals and they
are equipped with both fashion and functional attributes.6
Gray-market handsets are easily distinguished as non-gen-
uine ones by the general public due to sufficient network
6
However, Ramayah et al. (2002) found that consumers are reluctant
to spend excessive amounts of money on fashion luxury goods of
relatively short product life cycle, because these products are only in
vogue for a short time period after which they would be considered as
out-of-date.
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Determinants of Purchasing Gray-Market Smartphones 413

information. Also, functional performance and durability toward counterfeit goods is, the more likely he/she will
are essentially important in luxurious functional products. purchase gray-market smartphones. Therefore,
Gray-market handsets have worse performances on func-
H4 Attitude toward counterfeit goods is positively rela-
tionality and durability as compared to genuine smartphones.
ted to willingness of consumers to purchase of gray-market
Buyers of gray-market smartphones would not be considered
smartphones.
belonging to the higher social class. As resulted, status
consumers would never degrade their social standing
Perceived Risk
through the consumption of counterfeit goods that confers
lower status to surrounding significant others. It is reasonable
Perceived risk is the degree to which the consumer feels the
to believe that status consumption has a negative influence
uncertainty and consequences associated with their actions
on the attitude toward counterfeit goods. Therefore,
and play an important role in consumer decision-making
H3 Status consumption is negatively related to attitude (Stone and Grønhaug 1993; Pavlou 2003; Kwun and
toward counterfeit goods. Oh 2004; Hunter-Jones et al. 2007; Liao et al. 2010). In
particular, perceived risk appears when an individual is
involved in the situations where the outcomes are uncertain
Attitude Toward Counterfeit Goods
and are worried about the consequences of an unsuitable
decision (Fraedrich and Ferrell 1992; Liao et al. 2010). The
Attitude is a ‘‘learned predisposition to respond to a situation
extensive results of previous studies revealed that per-
in a favorable or unfavorable way’’ (Huang et al. 2004).
ceived risk negatively influenced the willingness to act a
According to Bagozzi et al. (2002), the most widely accepted
risky behavior (Keil et al. 2000; Nicolaou and McKnight
definition of attitude conceives of it as an evaluation, such as
2006). Consumers take actions to lower the perceived
psychological tendency that is expressed by evaluating a par-
risk associated with a purchase by shifting or postponing
ticular entity with some degree of favor or disfavor. Ramayah
their purchase, purchasing well-known brands and seeking
et al. (2002) revealed that consumers are likely to express more
advice or endorsement from a trusted source (Yeung and
favorable attitudes toward counterfeit goods when they per-
Morris 2001). The usages of gray-market smartphones
ceive that they are being ripped-off by genuine producers. Penz
have shown some unstable performances such as unex-
and Stöttinger (2005) pointed out that consumers justify their
pected shutdown and malfunction and even battery burst.
actions of buying counterfeit goods by stating that illegal pro-
These problems make consumers anxious. The risks of
ducers have lower margins than genuine producers and hence
using these phones are the possible losses mainly resulted
do not feel being ripped-off. Similarly, Voon et al. (2011) found
from the defects and malfunctions of the handsets. Thus, it
that attitude exerted significant positive effects on willingness
is reasonable to believe that the higher level of risk con-
to pay for organic food among consumers in a Malaysian city
sumers perceive the use of gray-market smartphones, the
and particularly indicated that efforts to promote consumption
less likely they purchase these handsets.
growth should focus on influencing consumer attitudes. Hence,
Therefore,
changing attitudes toward counterfeits can be served as a means
to reduce willingness to purchase gray-market products by H5 Perceived risk is negatively related to willingness of
investigating consumers’ novelty seeking, integrity, and status- consumers to purchase gray-market smartphones.
seeking motivations.
Based on the above arguments, the study postulates
Attitude toward some object is a good predictor of actions
a research model that investigates consumer’s behavior
related to the object over a wide range of situations and in
of willingness to purchase gray-market smartphones as
particular, it is often used as a predictor of consumers’
depicted in Fig. 1.
intentions and behaviors (Fishbein and Ajzen 1974; Huang
et al. 2004). Extensive studies (e.g., Kohlberg 1976; Emler
and Reicher 1987; Cole 1989; Wee et al. 1995) found that
attitudes toward counterfeits are positively related to pur-
Novelty Seeking
chase intention of a counterfeit product. It is cheap prices, H1 (+)
easy accessibility and availability as compared to the
authentic ones that people would be willing to purchase H2 (-) Attitude toward
Integrity Counterfeit H 4 (+)
counterfeit goods (Gentry et al. 2001). Producers of coun- H3 (-) Willingness to Purchase
terfeit goods provide an achievable dream for consumers H5 (-) Gray-market Smartphones
Status
who cannot afford the genuine goods but wish to reach the Consumption Perceived Risk

status image and satisfaction associated with owning such

goods. Hence, the more favorable a consumer’s attitude Fig. 1 Proposed research model

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414 C.-H. Liao, I.-Yu. Hsieh

Methodology Table 2 Demographic characteristics

Frequency Percent
Data Collection and Sampling
Gender
This study explores the factors of the willingness to pur- Male 112 47.06
chase gray-market smartphones. Thus, a stimulus-based Female 126 52.94
approach rather than a memory-based method is adopted Total 238 100
for data collection. In particular, the world’s most popular Age
smartphones, iPhone, is chosen as a stimulus in this Under 20 7 2.94
research. Before asking the participants to fill out the 21–30 129 54.20
questionnaire, the researcher presents both genuine iPhone 31–40 52 21.85
and gray-market iPhone to enable the participants to 41–50 40 16.81
examine and perform the handsets. This method ensures Beyond 50 10 4.20
that the respondents are familiar with the differences Total 238 100
between the genuine iPhone and gray-market one in order Industry employed
to minimize the bias. Student 51 21.43
The research objects are the mobile phone subscribers Manufacturing 12 5.04
and these respondents are not necessary to have experience Industry and commerce 40 16.80
of using gray-market smartphones. A sample of total 350 Service 32 13.45
respondents is collected by the systematic sampling method Public servant 52 21.85
which is a statistical method involving the selection of Freelance 9 3.78
elements from an ordered sampling frame. The most com- Information systems 17 7.14
mon form of systematic sampling is an equal-probability Agro forestry 1 0.42
method, in which every kth element in the frame is selected, Housekeeper 3 1.26
where k, the sampling interval (sometimes known as the Others 21 8.82
skip), is calculated as follows: k ¼ Nn , where n is the sample Total 238 100
size, and N is the population size. Using this procedure, Individual monthly income (US$)
each element in the population has a known and equal Less than 339 43 18.06
probability of selection. This makes systematic sampling 340–677 29 12.18
functionally similar to simple random sampling (Bowerman 680–1,017 61 25.63
et al. 2004). The researchers interview every fifth customer 1,018–1,355 48 20.17
with questionnaires at the service counters of telecommu-
1,356–1,694 21 8.82
nications operators in Taiwan. After deleting invalid sam-
1,695–2,033 20 8.40
ples (e.g., incomplete questionnaires or all items filled with
2,034–2,373 3 1.26
the same answers), total 238 effective samples are collected
Over 2,374 13 5.46
(with an effective ratio of responses 64 %).
Total 238 100
Experience of using mobile phones (years)
Descriptive Statistics Less than 1 3 1.26
1–3 7 2.94
The descriptive statistics are reported in Table 2. Of the 4–6 31 13.03
survey’s effective respondents, 47.06 % are male and 7–9 73 30.67
52.94 % are female. The age of respondents is mainly Over 10 124 52.10
between 21- and 40-years old. The respondents’ jobs are Total 238 100
public servant (21.85 %), student (21.43 %), industry and Replacement of mobile phones in the past year
commerce (16.80 %), service (13.45 %), others (8.82 %), Never 96 40.34
information systems (7.14 %), manufacturing (5.04 %), 1 109 45.80
freelance (3.78 %), housekeeper (1.26 %), and agro for- 2 21 8.82
estry (0.42 %). 45.8 % of the respondents earn between
3 9 3.785
US$680 and US$1,355 per month. Experiences of using
Over 4 3 1.26
mobile phone are over 10 years (52.10 %) and within 7 and
Total 238 100
9 years (30.67 %). 45.80 % of respondents replaced

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Determinants of Purchasing Gray-Market Smartphones 415

Table 2 continued agree (=5). A higher scale point of a statement implies the
Frequency Percent
higher level of agreement for the respondent. According to
the value of the mean score sorted from large to small are
Experience of using gray-market smartphones integrity (4.49), status consumption (3.93), perceived risk
Yes 128 53.78 (3.78), novelty seeking (3.22), attitude toward counterfeit
No 110 46.22 goods (2.26) and willingness to purchase gray-market
Total 238 100 smartphones (1.83). Four constructs’ mean score are more
Experience of using branded smartphones than 3 and two constructs’ mean score are less than 3. The
Yes 120 50.42 above descriptive statistics of the measurements are shown
No 118 49.58 in Table 4.
Total 238 100
How much will you pay for a branded smartphone? (US$) Factor Analysis
0–102 28 11.76
103–204 50 21.01 In order to identify key factors that influence consumers’
205–339 78 32.77 willingness to purchase gray-market smartphones, explor-
340–509 60 25.21 atory factor analysis is employed in this study. Exploratory
Over 510 22 9.24 factor analysis (principal component analysis with varimax
Total 238 100 rotation) is used to summarize the structure of a set of
variables and reduce a large number of variables into a
mobile phones once in the past 1 year; 40.34 % of smaller number of variables. The value of KMO is 0.870
respondents never changed their mobile phones in the past and the Bartlett test of sphericity (p \ 0.01) is significant;
1 year. More than half of respondents have the experiences it indicates the data is suitable for factor analysis. Eigen-
of using gray-market smartphones (53.78 %) and using value greater than one is used to determine the number of
branded smartphones (50.42 %). The willingness to pay of factors in each set of data. The results of the factor analysis
respondents for branded smartphones is evenly distributed. reveal six factors with eigenvalue of one or more, and the
32.77 % of respondents are willing to pay a price within six factors accounts for 75.952 % of cumulative variance.
US$205 and US$339 and 25.21 % of respondents are Besides, all the factor loadings are above 0.6.
willing to pay a price within US$340 and US$509.
As for the research model presented in Fig. 1, the defi- Factor 1: Integrity (INT)
nitions of the variables, questionnaire items and reference
source have been complied in Table 3. The questionnaire is The eigenvalue of this factor is 8.317 and 29.704 % of
composed of 28 questions. Respondents indicate their cumulative variance. The measurements of integrity are
agreement with a set of statements using a Likert five-point about respondents’ ethical consideration. Five items are
scale that range from strongly disagree (=1) to strongly included in the construct, which are INT1–INT5.
Table 3 Definition of the variables
Construct Definition Sources Item

Willingness to The desire of consumers to make a purchase of gray-market Bai et al. (2008) WTP1–WTP4
Purchase (WTP) smartphones in the future Ramayah and Lee (2010)
Attitude toward Consumers’ psychological tendency to behave in a consistently Mathiesson et al. (2001) ATT1-ATT5
Counterfeit (ATT) favorable or unfavorable manner with respect to counterfeit van der Heijden (2003)
goods
Novelty Seeking Consumers’ internal drive or motivating force to frequently Mallet and Vignoli (2007) NS1–NS4
(NS) explore novel and creative products and services
Integrity (INT) Consumers’ level of ethical consideration for and obedience to Cordell et al. (1996) INT1–INT5
the law Phau et al. (2009)
Status Consumption The motivational process by which consumers strive to Phau et al. (2009) SC1–SC5
(SC) improve their social standing through overt consumption of Eastman et al. (1999)
authentic status goods that confer or symbolize status to
surrounding significant others
Perceived Risk (PR) The degree to which consumers feel the uncertainty and Wu and Wang (2005) PR1–PR5
potentially undesirable consequences associated with the de Matos et al. (2007)
purchase of gray-market smartphones
López-Nicolás et al. (2008)

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Table 4 Respondents’ agreement with the measurements

Constructs Items Mean SD Factor
loadings

Novelty seeking (mean score: 3.22; explained NS1 I want to experience new and different things in my life 3.21 1.10 0.760
variance = 6.76 %; Cronbach’s NS2 I like innovative products because it gives me some of new 3.27 1.10 0.896
alpha = 0.901) experience
NS3 The creative product involves things that I have never seen 3.21 1.12 0.862
before
NS4 I tend to seek out new things 3.19 1.11 0.855
Status consumption (mean score: 3.93; SC1 A product is valuable if it has more snob appeal 4.03 0.78 0.675
explained variance = 4.333 %; Cronbach’s SC2 Authentic status goods could really show the status 4.19 0.64 0.662
alpha = 0.0.875)
SC3 I would pay more for a product if it has status 3.79 0.83 0.861
SC4 I would buy a product just because it has status 3.90 0.84 0.841
SC5 Owing authentic status goods confers and symbolizes my 3.76 0.82 0.854
status to surrounding significant others
Integrity (mean score: 4.49; explained INT1 I value honesty 4.52 0.72 0.922
variance = 29.704 %; Cronbach’s INT2 I value self-control 4.52 0.70 0.936
alpha = 0.955)
INT3 I value responsibility 4.55 0.70 0.929
INT4 I value politeness 4.52 0.71 0.918
INT5 A person should obey the laws 4.38 0.74 0.832
Attitude toward counterfeit (mean score: 2.26; ATT1 I have a positive perception towards counterfeit goods 2.36 0.97 0.739
explained variance = 15.782 %; Cronbach’s ATT2 Buying counterfeit goods is a better choice while shopping 2.22 0.84 0.841
alpha = 0.914)
ATT3 There’s nothing wrong with purchasing counterfeit goods 2.32 0.92 0.815
ATT4 It would be desirable for me to buy counterfeit goods 2.34 0.94 0.801
ATT5 I consider that buying counterfeit goods is great idea 2.06 0.86 0.811
Perceived risk (mean score: 3.78; explained PR1 The potential risk while using gray-market smartphones 3.92 0.84 0.796
variance = 10.514 %; Cronbach’s endangers my health (e.g., electromagnetic wave, battery
alpha = 0.876) explosion)
PR2 The potential risk while using gray-market smartphones 3.61 0.95 0.846
causes my unexpected financial loss (e.g., mistakenly
sending short message)
PR3 The potential risk while using gray-market smartphones 3.61 0.94 0.805
causes my unexpected troubles (e.g., voice distortion)
PR4 There is high probability that gray-market smartphones 3.97 0.83 0.753
don’t work
PR5 Gray-market smartphones are not reliable 3.77 0.97 0.698
Willingness to purchase (mean score: 1.83; WTP1 It is likely I will purchase gray-market smartphones within 1.75 0.87 0.846
explained variance = 8.859 %; Cronbach’s the next 6 month
alpha = 0.951) WTP2 It is likely I will purchase gray-market smartphones within 1.80 0.89 0.874
the next 2 years
WTP3 I intend to continue to purchase and use gray-market 1.90 0.99 0.772
smartphones in the future
WTP4 I recommend my family and friends to purchase gray- 1.85 0.98 0.788
market smartphones

Factor 2: Attitude Toward Counterfeit (ATT) Factor 3: Perceived Risk (PR)

The eigenvalue of this factor is 4.419 and 15.781 % of
cumulative variance. The measurements of attitude
toward counterfeit are about consumer’s psychological
tendency with respect to counterfeit goods. Five items
are included in the construct, which are ATT1–ATT5.
The eigenvalue of this factor is 2.944 and 10.515 % of cumu-
lative variance. The measurements of perceived risk are about
respondents’ risk concern and undesirable consequences asso-
ciated with the purchase of gray-market smartphones. Five
items are included in the construct, which are PR1–PR5.

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Determinants of Purchasing Gray-Market Smartphones
Factor 4: Willingness to Purchase Gray-Market
Smartphones (WTP)
The eigenvalue of this factor is 2.480 and 8.858 % of
cumulative variance. The measurements of willingness to
purchase gray-market smartphones are about the desire of
respondents to make a purchase of these handsets. Four
items are included in the construct, which are WTP1–
WTP4.
Factor 5: Novelty Seeking (NS)
The eigenvalue of this factor is 1.893 and 6.760 % of
cumulative variance. The measurements of novelty seeking
are about respondents’ internal drive or motivation to
explore novel and creative things. Four items are included
in the construct, which are NS1–NS4.
Factor 6: Status Consumption (SC)
The eigenvalue of this factor is 1.213 and 4.333 % of
cumulative variance. The measurements of status con-
sumption are about respondents’ consideration what they
strive to improve his or her social status through con-
sumption of authentic status goods and confer their status
to surrounding others. Five items are included in the con-
struct, which are SC1–SC5.
Reliability and Validity
Reliability of a measure is the ability to yield consistent
extent to which a variable or set of variables is consistent in
what it is intended to measure. In order to measure the
internal consistency and stability of each factor, corrected
item-total correlation (CITC) and Cronbach’s alpha coef-
ficient is used in this study. Cronbach’s alpha coefficient
between 0.7 and 0.9 means the reliability of the measure-
ment is high (Kerlinger and Lee 2000). Further, it is widely
recommended that the items from a given scale exhibiting
CITC scores should exceed 0.5 (Koufteros 1999; Churchill
and Iacobucci 2005). This study uses SPSS 16.0 for reli-
ability test of the model. After deleting INT5, SC1 and
SC2, all CITC score are between 0.70 and 0.917;
Table 5 Average variance extracted (AVE) and construct squared correlations
Constructs AVE INT
Integrity (INT) 0.853 1
Attitude toward counterfeit (ATT) 0.676 0.152
Perceived risk (PR) 0.577 0.050
Willingness to purchase (WTP) 0.842 0.024
Novelty seeking (NS) 0.702 0.064
Status consumption (SC) 0.703 0.014
417
Cronbach’s alpha values of each construct are between
0.875 and 0.955. This indicates that the measures are free
from error, and therefore yield very consistent results
(Zikmund 2003).
The confirmatory factor analysis of the measurement
model on multi-item scales shows that factor loadings in
each construct are statistically significant and sufficiently
high for structural model testing. The factor loadings of
±0.30 to ±0.40 are minimally acceptable, values greater
than ±0.50 are generally considered necessary for practical
significance (Lederer et al. 2000; Vijayasarathy 2004; Hair
et al. 2006). The confirmatory analysis of this measurement
model shows that all the factor loading exceeds the
threshold 0.5 and all critical ratio value are significant at
the 0.05 level when the value of it exceeding 1.96.
Discriminant validity is the assessment of the corre-
spondence of the variables to be included in a summated
scale and its conceptual definition. It is ensured by showing
that a latent variable does not correlate highly with others
from which it is supposed to differ. Discriminant validity is
assessed by constraining the correlation parameter between
each two constructs to 1. Further, this study examines the
difference of Chi-square value between constrained model
and unconstrained ones by Chi-square test. Significant Chi-
square difference suggests the achievement of discriminant
validity. Each pair of constructs involving all possible
combinations is assessed in a series of two-factor CFA
models by AMOS. All the Chi-squared differences are
significant at the significant level 0.01, providing strong
evidence of discriminant validity. As shown in Table 5, the
average variance extracted (AVE) measures the amount of
variance accounted by the latent construct. AVE is equiv-
alent to the average of squared standardized loadings in a
specified construct. In this study, each AVE exceeds the
recommended level of 0.5 and is found to be greater than
the squared correlations between latent constructs (Bagozzi
and Yi 1988). The results provide satisfactory evidence of
convergent for each construct.
Confirmatory Factor Analysis
As for the model-fit criteria, the values of GFI above 0.90
and AGFI between 0.80 and 0.90 can be viewed as good fit
ATT PR WTP NS SC
1
0.051 1
0.421 0.101 1
0.152 0.175 0.098 1
0.017 0.004 0.008 0.001 1
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418
of the model, as suggested by Browne and Cudeck (1993)
and Gefen et al. (2000). The CFI greater than 0.90 is
acceptable, indicating that more than 90 % of the covari-
ation in the data can be reproduced by the proposed model
(Chau 1997). The NFI is greater than the recommended
level of 0.90 representing an acceptable fit of the model to
the data (Bentler 1990). The RMSEA is less than 0.05,
which is in the recommended range (MacCallum et al.
1996). The RMR is with a score of less than 0.05 and it is
considered as an evidence of good fit in this study (Toit
et al. 1999).
The model is modified by examining the normalized
residuals. The variable with normalized residual exceeding
the threshold value of ±2.1 should be removed. After
removing WTP3, PR5, and NS1 that is connected with a
majority of the residuals exceeding 2.1, the goodness-
of-fit (GFI) is 0.889 and adjusted GFI (AGFI) is 0.855,
the comparative fit index (CFI) is 0.968 and the normed fit
index (NFI) is 0.926. The root mean square error of
approximation (RMSEA) is 0.054, the standardized root
mean residual is 0.037, and the v2/df value is 1.703
(330.402/194). In sum, the model has a good fit with the
data based on the above assessments. The fit indices for
CFA model are reported in Table 6.
Structural Equation Modeling
The structural equation modeling (SEM) approach is
applied to examine the hypothesized relationship in the
research model. Specific path coefficient is tested to
determine whether each of the various links is considered
an essential part of the model. The critical ratios (t value)
of these paths provide evidence of whether or not a
parameter is significantly different from zero and the crit-
ical ratios are greater than 1.96 are considered to be sta-
tistically significant. For achieving good model-fit, the
normalized residuals analysis is used to modify the SEM
model. The variable with normalized residual exceeding
the threshold value of ±2.58 should be removed. In the
initial SEM model, ATT1, PR4, ATT2, and INT4 con-
nected with a majority of the residuals exceeding 2.58 are
Table 6 Fit indices for CFA
Fit measures
p Value
Chi-square/df
Goodness-of-fit (GFI)
Adjusted GFI (AGFI)
Comparative fit index (CFI)
Normed fit index (NFI)
Root mean square error of approximation (RMSEA)
Root mean square residual (RMR)
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C.-H. Liao, I.-Yu. Hsieh
removed stepwise (Hatcher 1994; Hair et al. 2006). These
examined diagnostic elements indicate potentially signifi-
cant model specifications. Small fitted residuals indicate
good fit, but their size depends on the units of items of the
observed variables. Hence, the GFI is 0.909 and AGFI is
0.880, the CFI is 0.971 and the NFI is 0.934. The root mean
square error of approximation (RMSEA) is 0.056 and the
v2/df value is 1.753 (v2 = 227.95, df = 130). In sum,
the model is good for prediction and well explanation.
The structural path coefficients of final model testing are
displayed in Fig. 2.
In the final SEM model, the influence of novelty seeking
to attitude toward counterfeit goods is supported by a
significantly positive relationship (H1: c = 0.309,
t = 5.731). Mallet and Vignoli (2007) found that people
with novelty seeking personality prefer to discover the
sense of thrill and new experiences during tourism. In the
market, the fast and in-time availability of counterfeit
goods with different levels of quality (e.g., level A?, level
C) are offered at cheap prices as compared to their genuine
counterparts. Consumers easily possess, without consider-
able costs, genuine-like luxury and stylish brands for the
experience of the status symbolization despite of its low
quality. In sum, counterfeit goods offer consumers new
experiences in their life. Therefore, when consumers tend
to explore the unknown and seek out new things involving
with something that they have not seen before, they would
reflect more positive attitude toward counterfeit goods.
Integrity is found to be significantly and negatively rela-
ted to attitude toward counterfeit goods (H2: c = -0.205,
t = -3.177). Counterfeiting ignores the effort of genuine
manufacturers and reaps everything without sowing. Coun-
terfeit manufacturers seize the copyright and IPR of holders
arbitrarily and violate the creativity and originality of the
developers. Purchase of counterfeit goods is an action that
indirectly supports illegal counterfeit production and trans-
action. Consumers play an important role within the triangle
process of counterfeit trade—manufacture, sale, and pur-
chase. Consumers with high level of ethical considerations
and obedience to the law would have dislikes for counterfeit
goods. Thus, illegal counterfeit trade can be lowered. Similar
Criteria Original Final
[0.05 0.000 0.000
1–5 2.194 1.703
[0.9 0.832 0.889
[0.8 0.789 0.855
[0.9 0.938 0.968
[0.9 0.892 0.926
\0.05 0.071 0.054
\0.05 0.044 0.037
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Determinants of Purchasing Gray-Market Smartphones 419

0.25 0.34 0.33

ε16 ε17 ε18

NS2 NS3 NS4 0.28 0.21 0.15

0.891 0.852 0.854 ε7 ε8 ε9

ATT3 ATT4 ATT5

Novelty Seeking
0.815 0.876 0.896

0.07 ε19 INT1 0.929

0.378***

Attitude toward
0.05 ε20
0.951
INT2 Integrity
-0.190*** Counterfeit WTP1 ε1 0.07
0.917 0.947
0.625***
0.08 ε21 INT3 Willingness to Purchase 0.975 WTP2 ε2 0.04
-0.116* Gray-market Smartphones
0.831
Status Perceived Risk WTP4 ε4 0.28
Consumption
-0.189***

0.874 0.868 0.769 0.739 0.913 0.848

SC3 SC4 SC5 PR1 PR2 PR3

ε23 ε24 ε25 ε10 ε11 ε12

0.16 0.17 0.27 0.32 0.15 0.25

Fig. 2 Final SEM model. Standardized path estimates are reported CFI = 0.971, GFI = 0.909, AGFI = 0.880, NFI = 0.934, RMSEA =
with critical ratio (t value) in parentheses. *Significance of 10 % level; 0.056
***significance of 1 % level. v2 = 227.95, df = 130, v2/df = 1.753,

results were found in the past researches. Ang et al. (2001)
found that consumers who do not purchase pirated music
CDs view the manufacture of these CDs as an unfair behavior
to singers and music industry, as well as consider that
counterfeit is an unethical behavior.
Different than found in earlier studies with fashion, it is
found that attitude toward counterfeit goods is significantly
and negatively influenced by status consumption (H3:
c = -0.11, t = -1.841). Gentry et al. (2001) found that
status consumers have favorable attitudes toward counter-
feit luxury brands since these brand image rather than
tangible products symbolize their status. Owing to greatly
improved manufacturing technology, counterfeit goods are
indeed made extremely similar to genuine ones. Never-
theless, in this epoch of information explosion, enormous
sources of website, TV channel, and friend chats educate
consumers the ability to discern counterfeit goods from
authentic items. Therefore, status consumers would not
confer their social standing and gain status image through
the consumption of counterfeit status goods because of the
great fear of being detected that they are using counterfeit
goods. It leads to the negative impact on their status images
and status consumers never purchase counterfeit goods. In
result, status consumers would reflect negative attitude
toward counterfeit goods.
It is found that the willingness of consumers to purchase
gray-market smartphones is significantly and positively
influenced by attitude toward counterfeit goods (H4:
b = 0.608, t = 8.782). Consumers with unfavorable atti-
tudes believe that purchasing counterfeit goods have no
benefit to them and regard the objects as bad ideas. They
are less likely to purchase gray-market smartphones for the
use of mobile services or recommend these smartphones to
their family and friends. Under this circumstance, the
willingness of consumers to purchase gray-market smart-
phones would be low and result in the rejection of gray-
market smartphones. Past researches have concluded the
positive relationship between attitude and the resulting
behavioral intention in the extensive cases of service and
product adoptions (Dishaw and Strong 1999; Mathiesson
et al. 2001; van der Heijden 2003; Bruner and Kumar 2005;
Liao et al. 2007). Further, Gentry et al. (2001) and de
Matos et al. (2007) found the positive relationship between
consumers’ attitude toward counterfeit goods and purchase
behavior of counterfeit luxury brands.
Finally, the influence of perceived risk to willingness
of consumers to purchase gray-market smartphones is
supported by significantly negative relationship (H5: b =
-0.226, t = -3.312). Gray-market smartphones are the
electronic commodities that are not made with strict
manufactured processes and not well inspected by the
government authorities. It is well-known the unstable
performance of these handsets, and the malfunction inci-
dents of, for examples, sudden shutdown, hitch in touch
panel, unworkable icons embedded in desktop. Further, the
news also reported that gray-market smartphones from

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420
time-to-time resulted in body injuries by battery explosion
and considerable financial losses under users’ unwitting
circumstance by continuously sending short messages, and
by indefinitely connecting to the Internet with embedded
value-added software. The uncertainties caused by these
events make consumers suspect of the quality and impose
themselves psychological pressure and anxiety while using.
When consumers perceive the high uncertainty and unde-
sirable consequences that may be associated with usage of
gray-market smartphones, they would have low willingness
to purchase these handsets. The result is supported with
those of Tsiros and Heilman (2005), Cho (2010), and Chen
(2010) in the studies of purchasing behavior in perishable
categories at grocery store, electronic commerce, and online
game playing.
Conclusion
Conclusion and Discussion
This study discusses an important issue in today’s tele-
communications market and adopts a number of person-
ality factors to be examined as the possible drivers of
consumers’ willingness to purchase gray-market smart-
phones. This seems to fit well with today’s day and age
where smartphones (and gadgets of the like) can be seen
everywhere. The effort to examine personality factors as
well as consumers’ perceived risk as possible drivers of
gray-market smartphones consumption seems to be an
important contribution to the literature of consumer
behavior. Further, intellectual property owners can reduce
unethical purchase behaviors of smartphones based on the
finding what determines the purchase. Consumers’ attitude
toward counterfeit goods is found to be positively related
to the willingness of consumers to purchase gray-market
smartphones, but perceived risk is negatively related to
consumers’ willingness to purchase. As for personality
constructs, integrity and status consumption are found to be
negatively related to consumers’ attitude toward counter-
feit goods, but novelty seeking is positively related to the
attitude. In terms of the total effects (i.e., the sum of direct
effect and indirect effect) of measures in the SEM model,
the construct of consumers’ attitude toward counterfeit
goods has the strongest impacts on consumers’ willingness
to purchase gray-market smartphones with the value of
0.625, followed by novelty seeking (0.236) and perceived
risk (-0.189).
The contribution of this study to the existing literature
can be summarized as follow. This study is one of the first
one to analyze the factors influencing consumers’ purchase
behavior toward fast growing gray-market smartphones.
Related gray-market smartphone studies have only focused
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C.-H. Liao, I.-Yu. Hsieh
on the business model (Huang 2009; Hu et al. 2010), value
chain (Hu et al. 2010), cost estimation (Hsu 2009), and
innovation (Tsai 2009). Further, the counterfeit purchase
literature mainly discussed fashionable luxury goods (Wee
et al. 1995; Ang et al. 2001 de Matos, et al. 2007) and
computer software (Cheung and Prendergast 2004; Liao
et al. 2010). Secondly, novelty seeking is incorporated in
this study and is found to be indirectly and positively
related to consumers’ willingness to purchase gray-market
smartphones. In the prior studies on consumers’ purchase
behavior of counterfeit goods, only the two personalities of
status consumptions and integrity were adopted. Finally,
the study has derived a negative relationship between status
consumption and consumers’ attitude toward counterfeit,
inconsistently to the findings in past literature. This result
may be driven by the fact that gray-market smartphones are
easily detected by others and thus, would have negative
influence on the social image.
Managerial Implication
The results derived in this study provide several managerial
implications for both branded smartphone manufacturers
and telecommunications regulators. The SEM results
reveal that novelty seeking has the second strongest
impacts on consumers’ willingness to purchase gray-mar-
ket smartphones with the value of 0.236. Consumers are
motivated as internal drive to look for novel experience and
uniqueness. The biggest smartphone manufacturers of
Android operating system, HTC, launched 14 new models
in 2010 to satisfy consumers’ versatile needs and prefer-
ences.7 For example, HTC Sensation of high-definition
touch panel and Hi-Fi sound technology satisfies the con-
sumers who enjoy high-class multimedia experiences and
HTC Wildfire S is tailor made to each consumer in colorful
shells and abundant theme packages. In sum, frequent
launches of new smartphone models provide consumers
different use experiences and maintain the freshness to
manufacturers’ brand in order to continuously capture
consumers’ eyes.
Next, status consumption is found to have the negative
impact (-0.075) indirectly on the willingness of consumers
to purchase gray-market smartphones. The reasons mainly
lie on the negative image of using these smartphones
resulted from being detected by others. In fact, extensive
literature has proved that the attribute of status consump-
tion positively influences consumers’ purchase behavior
of prestigious goods (Eastman et al. 1999; O’Cass and
McEwen 2004). Namely, status consumers purchase
authentic goods in the pursuit of social image. Hence,
various selections of branded smartphones allow users to
7
In contrast, Apple launched only single model of iPhone 4 last year.
 Author's personal copy
Determinants of Purchasing Gray-Market Smartphones
symbolize the social status, express the personalities and
styles and satisfy the entertaining and professional images.
Branded smartphones are relatively expensive even
though the average prices recently dropped to $300 per
handset (STPI 2009). For example, the price of Apple’s
iPhone 4 in China is $800 but a gray-market iPhone only
costs $80, one tenth of genuine one’s price (Gxnews.com
2011). Namely, an iPhone 4 would cost 21.4 % of gross
domestic product (GDP) per capita ($3,744) in China (Yo
2011). Principle Economics has stated that the greater the
proportion of an individual’s income spent on a product,
the more elastic is the demand for it (Parkin 2009). Gentry
et al. (2001) also revealed that consumers in developing
countries are sensitive to the prices of products. Hence,
prices of goods and services play an important role in the
quantities demanded. When consumers cannot afford the
prices of branded smartphones, they would turn to purchase
counterfeit ones. It indeed explains the phenomenon of
China’s prosperous gray-market smartphone market. Fur-
ther, when facing a price elastic demand, low price would
be the effective strategy for manufacturers to take in order
to increase profits. Therefore, smartphone manufacturers
should provide low-price choices to satisfy the consumers
who cannot offer the high prices for smartphones currently
sold in the markets.
Perceived risk is found to have the negative impact
(-0.189) directly on the willingness of consumers to purchase
gray-market smartphones. Malfunctioning uncertainty of
gray-market smartphones incurs users’ financial loss and body
injury and drives up their risk perception on the handsets.
Namely, no quality guarantee nor post sale service is provided
by gray-market smartphone manufacturers. China, the second
largest economic entity in the world, has a total GDP of over
$39 trillion with a growth rate of 10 % annually in last decade
(Ma 2011). Typically, consumers’ demands on the better
quality of products come along with the improvement in
economic conditions and they are gradually affordable to
purchase genuine products. As for branded smartphone
manufacturers, handsets’ durability for usage and well-found
post sale service are key factors influencing consumers’ pur-
chase decisions. By doing so, low uncertainty related to the
use of genuine smartphones would drive up their demand. For
example, the legitimate IMEI code is required to be embedded
in all branded smartphones and the code allows telecommu-
nications service operators to trace the handsets back in the
case of loss or theft. But no legitimate IMEI code is embedded
in gray-market smartphones.
The study provides two managerial suggestions for
telecommunications regulators. Firstly, consumers’ attitude
toward counterfeit goods is found to have the strongest
impact (0.625) directly and positively on the willingness
of consumers to purchase gray-market smartphones. This
result is consistent to the findings in most literature that
421
investigated the link between attitude and intention
(Mathiesson et al. 2001; van der Heijden 2003; Bruner and
Kumar 2005). Namely, when consumers have unfavorable
manner with respect to counterfeit goods and regard them
as bad ideas while shopping, they less likely purchase gray-
market smartphones. Gray-market smartphones violate the
intellectual property rights of genuine counterparts and
impose the danger on the users while using. Further, they
may be used to engage in crime behaviors which are driven
by the embedded illicit IMEI code such that the calling
cannot be traced by the regulators. Therefore, deterrence
on the demand side of gray-market smartphones should
also be emphasized by the authorities. When a penalty is
imposed on the consumers who purchase gray-market
smartphones, it increases the costs of holding these coun-
terfeit goods and thus reduces the demands. The public
should also be educated via various channels by the fact
that purchasing gray-market smartphones is seen as indi-
rectly supporting the criminal activities of pirated copy-
right goods. However, no enactment has been implemented
for the prohibition of counterfeit purchase behavior except
in the European Union. Hence, laws on the prohibition on
purchase behavior of gray-market smartphones and on
transaction of legitimate IMEI code can be considered
and legislated. According to European Anti-Fraud Office
(OLAF 2007), an organization developed by European
Commission, tourists with the counterfeit goods would be
fined up to €400,000, or be sent into the prison for up to
4 years. The authorities should take the same actions that
put lawful duty upon consumers who support (i.e., by
purchasing the products) the manufactures and the trans-
actions of gray-market smartphones.
Secondly, the examination official product tests should
be implemented by the regulators for every model no
matter of branded and white brand smartphones before it is
put on sales in the market.8 The possible danger caused by
the electromagnetic waves while using mobile phones was
confirmed for the first time by World Health Organization
(2011) recently. The use of mobile phone is viewed as a
source of the carcinogenic hazard. Atay (2009) also found
that carrying a mobile phone on the waist for a long time
would diminish the users’ bone mineral density. The
authority of Germany has launched the ‘‘Der Blaue Engel’’
standard stipulating that the value of SAR cannot be exceed
the value of 0.6 W per kilogram of users’ body (Epoch-
Time.com 2009). It is a rigorous standard as compared to
the other countries in the world. In particular, the Depart-
ment of Health in Taiwan allows the value of SAR up to
2 W per kilogram of users’ body (Zhu 2009). Hence,
8
‘‘White brand’’ are one type of gray-market smartphones that are
manufactured by companies with mobile phone license that is
purchased from a legal holder and official testing approved phones.
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422
stricter SAR value should be set for every new mobile
phone model to protect the public’s health from the danger
of electromagnetic waves.
Limitation and Future Research
The limitation of this study is the accuracy of the mea-
surement in data collection. Gray-market smartphones are
one kind of counterfeit consumer electronics and sample
survey is conducted by interview with questionnaires.
Cordell et al. (1996) pointed out that the purchase of
counterfeit goods falls in the class of non-normative con-
sumers’ behaviors and it can be seen as the behavior sup-
porting illegal transactions. Thus, it leads the participants
in the survey non-truly reflect their own opinions for the
items raised in the questionnaire. As result, the respondent
may conceal their real attitude and willingness to purchase
gray-market smartphones.
There are two suggestions for the future research. First, the
status results in this study different than found in earlier
studies with fashion are due to it is much easier to detect a fake
phone than to detect a fake designer fashion item. But versatile
selections of counterfeit smartphones are offered at different
levels of quality (e.g., clone phones and imitation phones of
level A? to level C) in the market. Hence, there is a need for
future research to compare the motivation to consume gray-
market items for status when they are visibly knockoffs versus
when they look real. Secondly, the effect of cultural difference
among the entities on purchase behavior of gray-market
smartphones would be an interesting issue. The data collection
of this study is conducted in Taiwan, but China is the largest
market of mobile phones and gray-market smartphones. The
difference of culture and socioeconomic status between
China and Taiwan may result in different drivers on purchase
behavior of gray-market smartphones. The strength and rel-
ative importance of the proposed constructs might differ from
culture to culture. Therefore, the future research may collect
survey data in Taiwan and in China (or the East vs. the West)
to investigate the impacts of personality traits, socioeconomic
attributes and cultural attributes on purchase behavior of gray-
market smartphones.
Acknowledgments The authors appreciate the financial support of
the National Science Council in Taiwan (NSC 99-2410-H-006-021-
MY2). We would like to thank two anonymous referees of Journal of
Business Ethics for their constructive reports and very useful sugges-
tions. Responsibility for any remaining errors is that of the authors.
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