() and Astri Muren
Jonas Häckner: Dept. of Economics, Stockholm University, Postal: Department of Economics, Stockholm University, S-106 91 Stockholm, Sweden
Astri Muren: Dept. of Economics, Stockholm University, Postal: Department of Economics, Stockholm University, S-106 91 Stockholm, Sweden
Abstract: 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.
28 pages, October 10, 2004
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