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| Title: | | An economic analysis of trade-secret protection in buyer-seller relationships  |
| Authors: | | Bechtold, Stefan Höffler, Felix |
| Issue Date: | | 2007 |
| Series/Report no.: | | Preprints of the Max Planck Institute for Research on Collective Goods 2007,18 |
| Abstract: | | The economic analysis of trade-secret protection has traditionally focused on the interests of companies to conceal information from competitors in order to gain competitive advantage through trade-secret law. This has neglected cases in which the interest is not in concealing information from competi- tors, but from trading partners. We investigate the social e¢ ciency e¤ects of trade-secret protection in such cases. Many results from economic theory state that asymmetric information (and therefore also its legal protection) is socially undesirable since it leads to ine¢ cient trade. At the same time, protecting private information might create incentives for socially desirable investments. We model this trade-o¤ in a simple buyer-seller model and
nd that, indeed, trade-secret protection has ambiguous welfare e¤ects. However, a simple, informationally undemanding rule, conditioning the applicability of legal protection on a minimum investment by the informed party to conceal the information, helps to apply trade-secret protection only when it increases welfare. This rationalizes important features of current legal practice, but sug- gests that the e¤ort to conceal rather than the e¤ort to reveal the information should play a role when deciding whether or not trade secret protection should be granted. |
| Subjects: | | disclosure of information hold-up problems trade secrets |
| JEL: | | K2 D82 |
| Document Type: | | Working Paper |
| Appears in Collections: | | Preprints of the Max Planck Institute for Research on Collective Goods
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