The Competitive Significance Of Brands

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Deven Desai, Spencer Weber Waller, Jul 29, 2014

Brands and brand management have become a central feature of the modern economy and a staple of business theory and business practice. Brands also have important effects on competition and the marketplace; yet the two key areas of law concerned with competition—trademark and antitrust—have missed the importance of branding.

Contrary to the law’s conception of trademarks, brands are used to indicate far more than source and/or quality. Indeed those functions are far down on the list of what most businesses want for their brands. Brands allow businesses to reach consumers directly with messages regarding emotion, identity, and self-worth such that consumers are no longer buying a product but buying a brand.

As a competition matter, businesses pursue that strategy to move beyond price, product, place, and position and create the idea that a consumer should buy a branded good or service at a higher price than the consumer might otherwise pay. Branding explicitly contemplates reducing or eliminating price competition as the brand personality cannot be duplicated. This practice can be understood as a product differentiation tactic, which allows a branded good to turn a commodity into a special category that sees higher margins compared to the others in that market space. Despite these clear strategies and effects, trademark and antitrust law are somewhat blind to brands.

To some extent, both trademark and antitrust law’s myopia stem from the same cause. Over the past thirty years both bodies of law have relied heavily on neo-classical price theory to define legal rules that promote efficiency as the key driver in understanding competition. This approach can be a useful and powerful way to understand and manage competition as it relates to price. But such a focus misses (and often assumes away) the role that brands play as businesses seek to maximize profits in ways that may be inefficient.

In contrast, businesses and business literature explicitly acknowledge that brands are used to compete on dimensions other than price. Brands are levers that permit companies to differentiate their products and services, price discriminate, and increase customer loyalty to the point where price theory no longer explains well (i) what brands (if any) consumers view as substitutes, (ii) when confusion does or does not arise in the marketplace, and (iii) how consumers choose between brands and between dealers for the same brands.

The critical question is how to integrate brand management into existing legal doctrine. Our project is to answer this question. We start by describing the way brands work. Then we set out the core mistakes trademark and antitrust law make. We conclude by explaining some of the differences a brand perspective would have for antitrust and trademark law.