Trademark Licensing in a Monopolistically Competitive Industry

This article examines the efficacy of intrabrand rivalry in a monopolistically competitive industry. Intrabrand rivalry through trademark licensing would result in lower prices for consumers, but would also reduce product diversity because all brands would be less profitable. Using both the constant elasticity of substitution and the spatial models of product differentiation, we find that when fixed costs are specific to each firm, the welfare losses on product diversity dominate the welfare gains from lower prices, and consumer surplus declines. Under certain circumstances, however, trademark licensing can increase welfare when fixed costs are specific to each brand and can thus be shared among the licensed firms.