Getting the Word Out: The Informational Function of Trademarks

Abstract

This article challenges the statement that “the only legally relevant function of a trademark is to impart information as to the source of the product.” Information about the source of the product undoubtedly helps the consumer choose the product she wants from a set of possible products. This article argues, however, that the informational function of trademarks is broader: in addition to providing information about the source, a trademark often provides information that reduces consumers’ uncertainty about the product’s qualities and impacts purchasing decisions. Specifically, this article shows that a trademark not only helps the consumer choose the product she wants, but it can also help her decide how many units she should purchase of that product. This article then draws on several examples to illustrate that the reduction in consumers’ uncertainty enhances welfare but that under certain conditions it may be used by unscrupulous sellers to defraud customers. Drawing on these insights, this article turns to explain different types of regulations, the optimal investment in trademarks, and offers an alternative explanation as to why trademark law allows sellers to use “deceptively misdescriptive” marks.

Keywords: trademarks, marks, brands, search costs, information, false advertising, interbrand, intrabrand, signaling, branding, regulation, market mechanisms, fraud, strategies, law and economics

JEL Classification: D11, D81, D82, D83, D84, K00, K13, K39, L15, M37