Center for Advanced Management




Prof. Lee Davis (Copenhagen Business School)


  • Datum: 18.04.2012
    Zeit: 16:00-17:30
    Ort: Kaulbachstr. 45, Raum 202

Trademarks and Innovation: Exploring an Ambiguous Relationship

Both innovative and non-innovative firms use trademarks, one of the main forms of intellectual property rights. The primary economic function of trademarks is not – as with patents – to provide innovation incentives, but to signal quality and good will, enhancing efficiency by reducing consumer search costs and supporting firm branding efforts. Yet no matter how well-patented the innovation may be, if the firm cannot sell it, it cannot appropriate any rents. At the same time, since trademarks provide exclusive rights but not innovation incentives, rents may be generated based on the firm’s existing innovations. This raises the question: how do trademarks affect firm innovation?

To answer this question, we first comparatively explore how patents and trademarks address the same two sources of market failure (information non-excludability and information asymmetry). We argue that trademarks should enhance innovation when they enable firms both to erect high entry barriers, and to signal that the trademarked good is novel. When trademarks support novelty but not strong entry barriers, other market players may quickly appropriate the associated rents. When trademarks support strong entry barriers but not novelty, the firm may lose its incentive to continue to innovate under changing market conditions. By different forms of trademark strategizing, firms can affect their positioning.

Second, we will develop six propositions that could form the basis of future empirical work. These propositions have been inspired by scholarship in three strands of literature that are arguably relevant to understand how trademarks might affect innovation: 1) law and economics/property rights, 2) industrial economics, and 3) marketing (branding) economics. Our propositions address aspects of consumer search costs, entry barriers, path dependency, buyer-supplier relationships, and R&D “cost spreading.” We conclude our presentation by discussing some suggestions for future research.