Working Paper: CEPR ID: DP16987
Authors: Claudia Steinwender; Laura Alfaro; Maggie Chen; Cathy Bao; Junjie Hong
Abstract: We investigate how firms, markets, and consumer welfare adapt to trademark protection, an extensively utilized but under-examined form of IP protection to address asymmetric information, by exploring a historical precedent: China's trademark law of 1923. Exploiting unique, newly digitized firm-employee, price, and newspaper data from Shanghai's Concession Era, we show that the trademark law, established as an unanticipated and Western-disapproved response to end foreign privileges in China, significantly reduced information friction and shaped firm dynamics and market allocation on the opposite sides of trademark conflicts. Western firms that suffered from counterfeits decreased dependence on alternative communication channels and gained market share from Japanese counterparts who were most frequently accused of counterfeiting. The reduced information friction did not result in higher brand prices as new authentic varieties emerged after the law, leading to a coexistence of trademarks and competitive markets. Quantifying the consumer welfare effect based on the empirical findings suggests a 4.2\% welfare gain from the trademark law. A comparison with previous attempts by foreign powers---such as extraterritorial rights and bilateral treaties---shows that the alternative institutions were broadly unsuccessful.
Keywords: trademarks; firm dynamics; intermediaries; intellectual property; institutions
JEL Codes: F2; D2; O1; O3; N4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| 1923 trademark law (K11) | employment at trademark-intensive western firms (O34) |
| 1923 trademark law (K11) | employment at Japanese firms (M51) |
| 1923 trademark law (K11) | market share reallocation from counterfeiters to authentic producers (L17) |
| 1923 trademark law (K11) | linkages between western firms and Chinese intermediaries (L14) |
| 1923 trademark law (K11) | domestic integration and promotion of Chinese employees in western firms (M51) |
| 1923 trademark law (K11) | net growth in employment and product categories within trademark-intensive industries (O39) |
| 1923 trademark law (K11) | consumer confidence and demand for authentic products (D12) |