I subscribe to the theory that it is benefital for the sellers to produce watches with flaws. This keeps the customers coming back. As for the price difference, there are much more risk invovled in producing and selling a rep compared to one that is ultimately sold in Wal-Mart. As a result, the cost reflects this risk. In addition, having names like "Rolex" and "Panerai" on a watch is going to fetch a higher price than Gruen.
I should mention this is just my opinion from the outside (a buyer). I have never been invovled in the business.