Placebo Marks

Abstract

Scholars often complain that sellers use trademarks to manipulate consumer perception. This manipulation ostensibly harms consumers by limiting their ability to make informed choices. For example, holding other things constant, consumers spend more money on goods with a high-performance reputation. Critics characterize that result as wasteful, if not anti-competitive. But recent marketing research shows that trademarks with a high-performance reputation may sometimes influence perception to the benefit of the consumer.

A trademark with a high-performance reputation can deliver a performance-enhancing placebo effect. Research subjects perform better at physical and mental tasks when they prepare or play with a product bearing a high-performance mark. For example, subjects using a putter with a Nike label can sink a putt in 20% fewer strokes than subjects using the same putter with a different label.

This performance-amplifying effect stems from shaping consumer perception, but the effect does not limit consumer autonomy. Indeed, the benefits of shaping consumer perception may outweigh the costs. Moreover, understanding this performance-enhancing placebo effect provides additional insights. The effect is price sensitive. Maximizing price competition in a market for branded goods may sometimes reduce positive spillovers that would otherwise flow to consumers who use products with high-performance marks. Additionally, high-prestige marks do not provide a performance-enhancing effect, suggesting that consumers perceive and use high-performance and high-prestige marks differently. The difference might blunt criticisms of trademark mechanisms that safeguard prestige value like post-sale confusion and protection against dilution, at least for that subset of high-prestige marks that are also high-performance marks. Moreover, reforming trademark law to prevent all manipulation of consumer perception, including the creation of a high-performance reputation may have the unintended consequence of unraveling benefits consumers receive from mechanisms like performance-enhancing placebo effects.

Keywords: trademark, placebo, price, high performance marks, prestige marks, consumer, consumer perception, post-sale confusion, false advertising, functionality, price competition, brands

JEL Classification: K1, M31, M37, O34