Wednesday, 12 September 2018

Trademarks as sources of market power

A key source of firm profitability is market power - the ability to choose your own price. Firms with market power are not trapped in a low-profit (or no-profit) perfectly competitive market. As I mentioned in my post yesterday, firms will go to great lengths to protect their market power.

How do firms get market power in the first place though? A key source of market power is barriers to entry into the market - something stops other firms from competing by selling an identical product. However, barriers to entry aren't strictly necessary, if the firm can find some way of convincing consumers that their product is different from that of their competitors. In other words, firms can gain some market power if they sell a differentiated product.

One of the ways firms can differentiate their product is to use trademarks. Trademarks will stop competitors from copying some of the key elements of the firm's product. The variety of products that are trademarked may surprise you, but some cool examples are summarised in this New Zealand Herald article from June:
US toy maker Hasbro recently secured a trademark for the smell of their iconic childhood toy Play-Doh.
In doing so they shone a spotlight on the wide-ranging and sometimes quirky power of intellectual property rights - raising the question: are there limits to what can be trademarked?...
The Warehouse owns a trademark registration for its jingle, "the Warehouse the Warehouse where everyone gets a bargain", and similarly, Pizza Hutt has a trademark for its famous phone number jingle, "oh eight hundred eighty-three eighty-three eighty-three".
McDonald's has a trademark registration for its french fries box design, and something to keep in mind next time you pass a building site is that Fletcher Building has a trademark for the pronunciation of "GIB"...
The United States leads the way as far as peculiar and eccentric trademarks go. Footwear chain Flip Flop Shops has a trademark for the coconut smell that they use in their stores. Similarly, Verizon has a trademark for the "flowery musk scent" they pump through their locations.
The Eddy Finn Ukulele Company has a trademark for the piƱa colada smell they apply to one of their ukulele models. They even ran into trouble with their international customers when the ukuleles lost their smell after being shipped overseas.
Gestures have been offered IP protection as well, and champion sprinter Usain Bolt has taken full advantage registering two trademarks for his signature "bolting" pose where he leans back with one arm to the sky and the other pulled back by his ear.
Even athletes could use some market power I guess. Not all trademark attempts are successful though, as Nestle discovered in attempting to trademark the shape of the Kit Kat. One thing is clear though - every time you see a little (TM), you should be thinking 'market power'.

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