Trademark Protection, Quality Improvement and Exports in Developing Countries

Trademarks indicate the inherent quality or other distinguishing features of products. Strong trademark protection can lower consumers' costs of searching for preferred quality characteristics. With weak trademark protection, firms in developing countries may not be willing to provide high-quality products. With strong trademark protection, firms have an incentive to maintain or improve quality over time in order not to erode the value of their trademarks. By solving the theoretical model, we show that strengthened trademark protection in developing countries may induce domestic firms to become exporters and raise the quality of products on the export market. The welfare analyses show that strengthened trademark protection in developing countries benefits Southern customers and firms producing high-quality products, but harms firms producing counterfeits and uninformed customers, if firm H charges low prices. Given firm H charges a high price, the strengthened trademark protection only helps firm H and informed customers in the South while leaves the others unaffected.