Working Paper: NBER ID: w29721
Authors: Laura Alfaro; Cathy Ge Bao; Maggie X. Chen; Junjie Hong; Claudia Steinwender
Abstract: We investigate how firms, markets, and consumer welfare adapt to trademark protection, an extensively utilized but under-examined form of IP protection intended 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: trademark protection; China; foreign powers; market competition
JEL Codes: D2; F2; N4; O1; O3
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 western firms (M51) |
| 1923 trademark law (K11) | employment at Japanese firms (M51) |
| 1923 trademark law (K11) | market exit likelihood of western firms (F23) |
| 1923 trademark law (K11) | relationships with domestic intermediaries (L14) |
| 1923 trademark law (K11) | consumer welfare (D69) |
| 1923 trademark law (K11) | competition (L13) |