Download Competing Monopolistically

Trade Dress and Product Differentiation
Trademarks as Instruments of Monopolistic
Competition
Workshop on « Economic Analysis of Trade Marks and Brands »
5th and 6th June 2008 at OHIM in Alicante
MPI Munich
Competing Monopolistically

Firms:
Target some distinct consumer group
Differentiate their products to match consumer
preferences

In order to:
Exercise control over price proportional to the demand
elasticity of the target group
Be able to ignore price and production decisions of
competitors to a certain extent

Each firm becomes a monopolist with regard to
the consumers that prefer its product
Trademarks and (Monopolistic)
Competition

Conventional wisdom about the role of
trademarks in the marketplace:
Consumer search cost minimization
Product responsibility - Avoidance of the adverse
selection problem
Communication function?

Trademarks as Instruments of Monopolistic
Competition
Non-conventional trademarks – Especially Trade Dress
Protecting methods of product differentiation
In the background of trademark litigation there is often
a non-reputation related interest
The Effectiveness of Monopolistic
Competition I
Chamberlin (1933): Unexploited
Economies of Scale
 Core assumptions of the Chamberlinian
model:

Large group of independent producers each
selling a differentiated version of a specific
commodity
Consumer preferences are symmetrically
distributed among the various products
Free entry
The Effectiveness of Monopolistic
Competition I

In the long run:
New entrants taking customers symmetrically from each
incumbent would drive economic profits to zero level
Firm’s market share is not large enough to allow for
advantages related to economies of scale (excess
capacity theorem)

Result:
Conflict between product diversity and productive
efficiency
Product variety is considered to be optimal when it does
not lead to unexhausted economies of scale
The Effectiveness of Monopolistic
Competition II

Un-exhausted economies of scale are
trumped by consumer utility derived from
product variety

Social Optimum reflects a decision of the
consumer on the number of available
products and the quantity of each brand
The Effectiveness of Monopolistic
Competition II

The degree of product variety would
usually be suboptimal:
There would always be either too much variety
because firms would tend to differentiate
intensively in the advent of monopoly profits
or
Too little variety because high fixed costs of
entry keep the number of firms at a low level

Result: Monopolistic Competition is
effective in a dynamic way, since it
provides firms with incentive to satisfy
diverse consumer needs
Product Variety and the Market
Mechanism
Hotelling: The principle of Minimum
Product Differentiation
 Will firms disperse in anticipation of
monopoly profits
 Or will they prefer the conformity of
imitation?
 Could Trademarks be conceived as
instruments of facilitating dynamic
competition with differentiated products?

The Relevance of the Niche Market
Concept





Evolutionary Economics: Surviving in the
marketplace creating niches
Working with distinct consumer groups
immunizes firms from price undercutting of
bigger competitors
Antitrust case law and theories of unfair
competition that consider such price undercutting
as anticompetitive
A Schumpeter type argument: Monopoly profits
arising out of market niches could be utilized for
emergence of new differentiated products
Trademarks as mobility barriers
Current Trademark Doctrine
ECJ seems sceptical towards nonconventional trademarks
 Case Law: Coronita, Storck, The Washing
Tablets Cases

Current Trademark Doctrine






Concerns over product “monopolies” expressed in
trademark parlance
Distinctiveness denied I: Consumers not
accustomed to view trade dress as indication of
origin
Distinctiveness denied II: combinations of basic
shapes and colours
Trademark protection only for signs that depart
significantly from the norm
Furthermore, the sign at issue should also be
distinctive at the time of registration
USA: Secondary meaning requirement
Possible to Integrate Competition Concerns into
Trademark Norms?
Trademarks as Part of Competition Law
 Balancing interests of consumers,
competitors and the public interest on the
maintenance of a competitive market
structure in trademark litigation
 Trademark Law and Social Norms:
Reactive to consumer expectations vs.
Shaping social norms

And a Word of Caution:
Possible Anticompetitive Effects
 Restriction of Localized Competition
 Control of submarkets through trade dress
claims

And a Word of Caution:

Current functionality doctrine seems not
to take account of this problem
Functionality is either “mechanical” or
Aesthetic denying protection in extreme cases
(e.g. spare parts)