Will the markets actually fail? Or will there always be a sucker ready to try their luck? I remember seeing this happen in the Retro Video Game community with Flash carts.
Independent developer developed a flashcart for the Sega Dreamcast and was subsequently ripped off. After he complained on Twitter, most of the community sided with the cloners. They just want their cheap garbage and they have no idea/care regarding the massive effort it takes to develop a device like this.
Never mind the fact that the original developer will be inundated with support/bugfix requests for the clones while the Chinese cloners disappear into the ether having stolen all the value.
He eventually walked away from the project from what I recall which pissed off his original buyers and now others have stepped up with their own devices(And will probably be cloned).
Luckily the one (temporary) respite you have in software/hardware is DRM. If you can implement a complex enough DRM system you can slow down the cloners from stealing your software for some period of time. It sucks but this is the world we live in.
One tactic that a Flashcart manufacturer is using is some sort of serial coded firmware updates that only operates on a specific date code of flashcart. It requires the user to log into an account and get the specific firmware update that is tied to their flashcart. It has caused some complaints from the community regarding ease of use + resale woes(transferring ownership from one legit user to another) but overall this is an interesting solution. It hasn't fully prevented clones but has slowed them down somewhat.
I wish there was some way this could be applied to the non-software world but you can't defeat the physical layer.