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AUTHOR:
Andrew Griffiths
TITLE:
Information and Product? Trade Marks as a Source of Economic Benefit
SUGGESTED CITATION:
Andrew Griffiths
(2006)
"Information and Product? Trade Marks as a Source of Economic Benefit",
German Working Papers in Law and Economics:
Vol. 2006:
Article 14.
http://www.bepress.com/gwp/default/vol2006/iss1/art14
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ABSTRACT:
This paper will build upon a paper delivered at the 2005 Workshop in Ghent, “An
Economic Perspective on the Concept of Origin in Trade Mark Law”, and a
subsequent paper on the economic rationale of trade mark law. The Ghent paper
considered the “essential function” that trade marks are supposed to perform
according to trade mark law, namely indicating the “origin” of products, and showed
how this term has a special meaning. Thus, a trade mark indicates that the
products with which it is used have a particular economic parentage or trade (or
commercial) and does not, for example, indicate their physical source or identify
their manufacturer (or provider, in the case of services). Moreover, a trade mark
does not have to reveal any details about the origin of the products with which it is
used, but merely signifies that a firm (or other undertaking) is responsible for the
presence of the goods or services on the market bearing (or sold under) the trade
mark and has thus accepted commercial responsibility for them. In effect, a trade
mark provides a commercial identity for products that can be used as a means of
defining them in a market transaction and as a reference point for conveying
information about them and (in the case of goods) in subsequent transactions.
Trade marks can therefore be anonymous and do not have to be tied to any
particular set of production arrangements. They can be transferred from one firm to
another. They provide a focus for acquiring a reputation or “goodwill” that can then
be used to generate the economic benefits associated with this factor in terms of
providing information and combating opportunism. Moreover, they provide a focus
that has great flexibility and versatility as a component of an economic organisation
because it can be kept separate from any one undertaking or from any particular set
of production arrangements. This flexibility underlies the crucial role of trade mark
in the evolution of such business structures as franchising and sub-contracting.
The second of the previous papers considered the economic rationale of trade mark
law, the guidance this may provide in analysing the development of the law
governing the protection of trade marks and the economic case for expanding this
protection in the case of familiar (or “strong”) trade marks. It noted how trade marks
contribute to productive efficiency through their role in providing a focus for
goodwill. It also noted their contribution to allocative and dynamic efficiency,
although the full nature and extent of this contribution is debatable and provides
the context for the present paper.
The present paper will examine the economic benefits that trade marks
generate, starting with the model, developed by Landes and Posner, that these take
the form of a reduction in “search costs” and that this (rather than monopolistic
power based on artificial product differentiation) explains why products sold under a
trade mark can command premium prices in the market place. It will explore the meaning and range of “search costs” and note how they increase in scale if
competing products on a market are assumed to differ significantly in terms of
quality and other characteristics where consumers have no ready means of
ascertaining these differences prior to purchase. In such a scenario, the concept of
“search costs” encompasses the risk of purchasing an inferior product.
This paper will then consider the view that certain trade marks can become
something more than an efficient reference point that enables a firms to achieve a
competitive advantage through reducing consumers’ search costs and constitute a
source of utility or benefit in their own right. It will examine two reasons for this
view. First, there is the idea that a capacity for reducing the risk of purchasing an
inferior product can be qualitatively different from a reduction in transaction costs if
a consumer is assumed to be risk-averse. Thus, consumers may attach great
importance to the safety, reliability and durability of products such as cars and be
willing to pay a substantial premium, but have to rely on trust or reassurance as to
whether a particular item offered to them has the qualities that they are seeking. It
is arguable that the risk of disappointment represents a significant psychological
cost for such consumers and that a trade mark that they can trust and that
reassures them in fact confers a significant psychological benefit that adds value to
the actual functional value of their purchase.
The second reason for viewing a trade mark as a distinct source of benefit to
consumers is based on the idea that, as a familiar reference point, a strong trade mark can do more than provide a channel for passing information to consumers
about the quality and other characteristics of products that they may buy. A trade
mark can link products with themes and imagery used in advertising and promotion
that establish a “brand image” or set of “brand values”. The trade mark then
provides a means of gaining access to the image or values. This linkage may come
to be as much an object of consumer desire as the product bearing the trade mark
and consumers may perceive the trade mark as a source of benefit, this also being
mental or psychological in nature. In this context, this paper will examine the ideas
of marketing theorists, such as Jerre B. Swann, who have suggested that products
deliver a hierarchy of benefits to consumers: the “functional” benefits of the product
itself; additional “emotional” benefits of reassurance, satisfaction and security; and
further “self-expressive” benefits of linking consumers with an image or set of values
with which they wish to identify themselves or which they believe are likely to be
shared by the kind of people with whom they would like to be associated. Such selfexpressive
benefits can be linked with the trend whereby trade marks are displayed
on a product: in effect, consumers can use a product displaying a trade mark as a
means of conferring an identity or image upon themselves or to convey information
about themselves to others and derive utility from being able to do so.
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