Slice to Protect

Peter S. Eppinger (), Bohdan Kukharskyy (), Alireza Naghavi () and Gianmarco I. P. Ottaviano ()
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Peter S. Eppinger: University of Oldenburg
Bohdan Kukharskyy: City University of New York
Alireza Naghavi: University of Bologna, Kyoto University
Gianmarco I. P. Ottaviano: Bocconi University

No 2025.16, Working Papers from International Network for Economic Research - INFER

Abstract: We propose the idea that firms slice up global production processes to protect their know-how. By sourcing fewer inputs from a given supplier, firms avoid the concentration of information in the hands of any individual supplier and thereby reduce the risk of imitation. We study this phenomenon using global and highly granular data on firm-to-firm trade in automotive components. The data reveal a U-shaped relationship between the number of components per supplier (concentration) and intellectual property rights (IPR) protection. This U-shape can be rationalized by a combination of a protective effect and a compositional effect of IPR protection: In countries with very weak IPR protection, firms source only low-tech components, for which imitation is not an issue and concentration is optimal to save fragmentation costs. Improvements in IPR protection induce firms to source more high-tech components, which are susceptible to imitation, so firms ‘slice to protect’ production at intermediate levels of IPR protection. Further improvements in IPR institutions mitigate the imitation risk and increase concentration.

Keywords: Intellectual property rights; global value chains; production; imitation; automotive industry; fragmentation; multinational firms (search for similar items in EconPapers)
JEL-codes: F L (search for similar items in EconPapers)
Pages: 43 pages
Date: 2025
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