The wastes of advertising, about which economists have so often complained, would be reduced, for no one could afford to build up goodwill by this means, only to see it vanish through the unimpeded entrance of competitors. There would be more nearly equal returns to all producers and the elimination of sustained monopoly profits. All in all, there would be a closer approach to those beneficent results ordinarily pictured as working themselves out under “free competition.”Edward Hastings Chamberlin, The Theory of Monopolistic Competition: A Re-Orientation of the Theory of Value 274 (7th ed. 1956).
This view, by the father of the theory of monopolistic competition, is of course still radical today. The entirety of Appendix E of The Theory of Monopolistic Competition, which he devotes to this attack on trademark, did not deserve to be forgotten. You can read it all here.
Where I think I differ with Chamberlin on trademark is this passage:
The question is, where does identification leave off and differentiation begin? [Absent trademark, t]here would be mere identification, without further differentiation of product, in the case of two competing goods, identical in every respect, – as to color, shape and design, labels, marks and names, everything excepting only an inconspicuous identification mark or the name and address of the producer. Obviously “protection” which went no further than this would have no economic value to the producer, for it would mean no more to the buyer than does the slip found in a container (and which identifies perfectly), “Packed by No. 23.”Edward Hastings Chamberlin, The Theory of Monopolistic Competition: A Re-Orientation of the Theory of Value 272 (7th ed. 1956).
Chamberlin’s claim that “Packed by No. 23” is all identification and no differentiation works intuitively for us because we know that the company that employs No. 23 already engages in a great deal of supervision of the quality of No. 23’s work. We have learned that within-brand product quality is pretty good (at least these days), and so we can ignore these little notes, which may be the legacy of an earlier stage in the industrial age in which within-firm quality standards were still something of a work in progress.
But I do think that we would be far more likely to pay attention to No. 23 were it used as a brand name, rather than an identifier of within-brand quality, for there is no great bureaucratic organization standing over all brands in our economy, making sure each meets quality requirements, and willing to “fire” any that shirks or underperforms. To analogize the Consumer Products Safety Commission to a boss to American’s producers would be funny.
And so we would pay attention to No. 23–just as we pay attention to Chanel No. 5–and paying attention is all it takes for identification to cross over into differentiation, as any marketer will tell you. Attention leads to familiarity which leads to irrational preference.
The only way out of differentiation and all the irrational loyalty that comes with it is not to identify. But to do that, without throwing the consumer into a hell of shoddy and fake goods, one must then build up that great bureaucratic organization standing over all brands in our economy, making sure each meets quality requirements, and willing to “fire” any firm that shirks or underperforms.
That is, we must put businesses in the position of poor, hardworking No. 23.
But even if we were to do that, I am not sure that the end would justify the means. For if the point were alone “the elimination of sustained monopoly profits” via the increased price competition that would follow the demise of trademark, as Chamberlin suggests that it would be, I have a better idea: just pass a law that says “charge lower prices.”
If the goal is, instead, to achieve better product quality standards than exist today, then of course the great economy-wide bureaucracy would be needed.
(I thank my colleague Brian Frye for triggering this line of thought.)