Trademark dilution, whereby a firm associates its product with that of another firm and takes advantage of the goodwill created by that firm, is illegal in the EU and in the US. We investigate this regulation from a welfare perspective, considering short-term effects on profits and consumers’ surplus, as well as long-run effects on investment. We find the circumstances under which laws against trademark dilution are welfare-enhancing to be limited. Under Bertrand competition, trademark dilution is never an equilibrium outcome since a decrease in the amount of product differentiation is always associated with a decrease in the prices and profits of both firms. Under Cournot competition anti-dilution laws may change equilibrium investment patterns, but only for intermediate levels of investment costs. If legislation does have an impact, the welfare effects are ambiguous.
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Paper provided by Stockholm University, Department of Economics in its series Research Papers in Economics with number
2004:15.
Length: 28 pages Date of creation: 10 Oct 2004 Date of revision: Handle: RePEc:hhs:sunrpe:2004_0015
Contact details of provider: Postal: Department of Economics, Stockholm, S-106 91 Stockholm, Sweden Phone: +46 8 16 20 00 Fax: +46 8 16 14 25 Email: Web page: http://www.ne.su.se/ More information through EDIRC
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Find related papers by JEL classification: K11 - Law and Economics - - Basic Areas of Law - - - Property Law K13 - Law and Economics - - Basic Areas of Law - - - Tort Law and Product Liability L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
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