Trademarks As Sources of Market Power: Drugs, Beers and Product Differentiation

Trademarks As Sources of Market Power: Drugs, Beers and Product Differentiation

P. Sean Morris (University of Helsinki)

Abstract:      This article defines the notion of market power and how in conjunction with trademark rights give rise to elements that are deemed anticompetitive in a free market society. I will use legal arguments to consider how important developments in antitrust economics, particular, product differentiation and monopolistic competition have contributed to other developments in the intellectual property/antitrust divide. My goal is to demonstrate that once a better picture of market power is developed, trademarks which are used as a form of differentiation are a source of market power. In the paper, I examine product differentiation and its relationship to trademarks by using the path breaking theoretical work of Chamberlin’s Theory of Monopolistic Competition (1933). A key goal in this paper is to demonstrate that “most prices involves monopoly elements” and are “mingled in various ways with competition,” as Chamberlin (2nd Edition, p.15), similarly developed in his work. I use a number of cases in the field of trademarks to underscore the key points in my argument that trademarks are a source of market power. These case developments, I argue, contributes to the monopolistic tendencies of trademarks and such tendencies are associated with the theory on market power and product differentiation. To underscore my arguments even further, I examine the ABI Beer Corporation and their various trademarks/brands to determine if such brands are a source of market power and effectively give ABI a monopoly on the beer market. Another crucial discussion in the paper to support my thesis is on product hopping in pharmaceuticals. I then develop a theory of branded monopoly and suggest that there is a need for a new direction in trademarks and antitrust law. If recognizing that trademarks are a source of market power, and hence, a core concern for antitrust law and policy, then the legal foundations of the current trademark system would need a radical redesign. If on the other hand, recognizing that trademarks are a source of market power, but does not conflict with antitrust law, and antitrust enforcers are to ignore conducts such as barriers to entry, then antitrust law and trademark law can continue to co-exist in the current system, but would be on dubious grounds.

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