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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.

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Paper provided by Stockholm University, Department of Economics in its series Research Papers in Economics with number 2004:15.

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Length: 28 pages
Date of creation: 10 Oct 2004
Handle: RePEc:hhs:sunrpe:2004_0015
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Department of Economics, Stockholm, S-106 91 Stockholm, Sweden

Phone: +46 8 16 20 00
Fax: +46 8 16 14 25
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  1. Motta, Massimo, 1993. "Endogenous Quality Choice: Price vs. Quantity Competition," Journal of Industrial Economics, Wiley Blackwell, vol. 41(2), pages 113-131, June.
  2. Jonathan Eaton & Gene M. Grossman, 1986. "Optimal Trade and Industrial Policy Under Oligopoly," The Quarterly Journal of Economics, Oxford University Press, vol. 101(2), pages 383-406.
  3. Avner Shaked & John Sutton, 1982. "Relaxing Price Competition Through Product Differentiation," Review of Economic Studies, Oxford University Press, vol. 49(1), pages 3-13.
  4. Pechmann, Cornelia & Stewart, David W, 1990. " The Effects of Comparative Advertising on Attention, Memory, and Purchase Intentions," Journal of Consumer Research, Oxford University Press, vol. 17(2), pages 180-191, September.
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