Coase-Sandor Working Paper Series in Law and Economics

Publication Date

2006

Publication Title

Law & Economics Working Papers

Abstract

This Article challenges the common wisdom about the desirability of celebrated trademarks. Contrary to the traditional view, it argues that mega-brands are neither economic evils nor is their function limited to imparting information regarding the physical product they flaunt. The Article also rejects the view that famous marks persuade consumers (often referred to as "Snobs") to "irrationally" pay more for the same physical product they could have purchased for less. Rather, it argues that in purchasing a branded good the consumer is actually purchasing three tied products in one package: a physical product, information about the physical product, and an intangible product such as fame, prestige, peace of mind or a pleasant feeling. Contrary to prior literature, this Article argues that the intangible product benefits both producers and consumers. It explores the demand for the intangible product, its impact on pricing, welfare and consumers' and producers' strategies. It argues that under certain conditions one may witness the anomaly of an increase in both price and output, but that such observation does not mandate the conclusion that consumers are facing an up-sloping demand curve as discussed in the literature of conspicuous goods. Instead, the Article proposes that this phenomenon may occur in the traditional down-sloping demand curves and that it is not limited to goods with conspicuous properties. The Article has normative and descriptive implications with regard to three distinct bodies of law: price discrimination, trademark anti-dilution and trade-name law. A direct result is that mega-brands neither confer a monopoly nor foster price discrimination. On the contrary, they enhance competition in both the physical and intangible spheres. The Article also offers a new rational basis for one of the most nebulous doctrines in trademark law: anti-dilution. Anti-dilution law provides special protection to famous marks which is not available to regular ones, and has been unanimously enthroned as one which protects only producers but is injurious to consumers. Conversely, this Article argues that anti-dilution law inures to the benefit of both consumers and producers. It attempts to clear the constitutional concerns that have been raised with regard to the doctrine and explains the fame requirement. The article concludes that Snobs are rational and that there are sound economic justifications for the law’s unique protection of famous marks.

Number

285

Included in

Law Commons

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