Why is contraband important?

Answer 1

Contraband is illegal to possess or sell. In international trade, contraband can devalue real goods not only by diluting the market, but also by distributing lower-quality goods under a highly-respected trademark.

For example, say a given market can move about 2 containers of Marlboro cigarettes each month. If a smuggler brings in another container of real Marlboros, supply far outstrips demand, lowering the relative value of all of the cigarettes. If the smuggler instead brings in a container of low-quality cigarettes branded as Marlboros, the relative value is lowered because of the supply/demand offset, but in addition, consumers believe the quality of Marlboros has dropped.