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Trademark Dilution - A Welfare Analysis

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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.

Suggested Citation

  • Häckner, Jonas & Muren, Astri, 2004. "Trademark Dilution - A Welfare Analysis," Research Papers in Economics 2004:15, Stockholm University, Department of Economics.
  • Handle: RePEc:hhs:sunrpe:2004_0015
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    4. Avner Shaked & John Sutton, 1982. "Relaxing Price Competition Through Product Differentiation," Review of Economic Studies, Oxford University Press, vol. 49(1), pages 3-13.
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    More about this item

    Keywords

    trademark dilution; marketing;

    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; Forensic Economics
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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