CESifo working paper: Industrial Organisation 3716
Continued lobbying by high-end, American designers for intellectual property-type fashion design protection has culminated in the proposed Innovative Design Protection and Piracy Prevention Act, intended to introduce EU standards. Using a sequential, 2-firm, vertical differentiation framework, we analyze the effects of protection on investment in innovative designs by high-quality (designer) and lower-quality (mass-market) firms when the mass-marketer may opt to imitate, consumers prefer trendsetting designs and firms compete in prices. We show that design protection, by transforming mass-marketers from imitators to innovators, may reduce both designer profits and welfare. The model provides possible explanations for the dearth of EU case law and the increase in designer/mass-marketer collaborations.
intellectual property rights fashion design protection imitation licensing