Slice to Protect

Peter Eppinger, Bohdan Kukharskyy, Alireza Naghavi and Gianmarco I. P. Ottaviano

No 12694, CESifo Working Paper Series from CESifo

Abstract: We examine how firms strategically slice up global production processes to protect proprietary know-how. By sourcing fewer inputs from each supplier, firms avoid the concentration of information in the hands of individual suppliers and thereby reduce the risk of imitation. Using rich micro data on firm-to-firm trade in automotive components, we uncover a robust U-shaped relationship between the number of components sourced per supplier (concentration) and the strength of intellectual property rights (IPR) protection. This U-shape can be rationalized by a combination of a protective effect and a compositional effect of IPR institutions. In countries with weak IPR protection, firms source only low-tech components, for which imitation is irrelevant, so concentration is optimal. At intermediate IPR levels, they buy more high-tech, imitation-prone components and therefore 'slice to protect'. Under strong IPR regimes, imitation risk is minimal and concentration is highest. Empirically, weak IPR institutions strongly predict slicing of high-tech components.

Keywords: intellectual property rights; global value chains; production; technology; imitation; automotive industry; fragmentation; multinational firms (search for similar items in EconPapers)
JEL-codes: F12 F14 F21 F23 L23 L24 L25 O32 O34 (search for similar items in EconPapers)
Date: 2026
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