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German Working Papers in Law and Economics
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Volume 2006

Andrew Griffiths

Information and Product? Trade Marks as a Source of Economic Benefit

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.

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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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