Trade secret protection and product market dynamics

Daniel Bradley, Dan Hu, Xiaojing Yuan and Chi Zhang

Journal of Corporate Finance, 2023, vol. 83, issue C

Abstract: We exploit the staggered state-level enactment of the Uniform Trade Secret Act (UTSA) to examine the impact of intellectual property (IP) protection on product market dynamics. We find that UTSA-impacted firms shift their IP strategy to rely more on trade secrets and less on patents. Less IP disclosure increases information asymmetry and rival firms must adapt their competitive strategies as espionage and reverse engineering become more costly. Predation risk increases, and rivals engage in more intense price and non-price competition. Additionally, we find the probability of being acquired increases post-UTSA as rivals seek to acquire innovation, resulting in more concentrated product markets. Further, we find that the stock market generally views UTSA favorably.

Keywords: Trade secrets; Intellectual property; Competitive threats; Predation risk; Market dynamics; Product market concentration (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:83:y:2023:i:c:s0929119923001190

DOI: 10.1016/j.jcorpfin.2023.102470

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