DP16987 Omnia Juncta in Uno: Foreign Powers and Trademark Protection in Shanghai's Concession Era
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.
