An economic analysis of tradesecret protection in buyer-seller relationships
Felix Höffler and
No 08-04, WHU Working Paper Series - Economics Group from WHU - Otto Beisheim School of Management
The economic analysis of trade-secret protection has traditionally focused on the interests of companies to conceal information from competitors in order to gain a competitive advantage through trade-secret law. This has neglected cases in which the interest is not in concealing information from competitors, but from trading partners. We investigate the social efficiency effects 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 inefficient trade. At the same time, protecting private information might create incentives for socially desirable investments. We model this trade-off in a simple buyer-seller model and find that, indeed, trade-secret protection has ambiguous welfare effects. 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.
Keywords: disclosure of information; hold-up problems; trade secrets (search for similar items in EconPapers)
JEL-codes: K2 D82 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Published J Law Econ Organ (2009) 27 (1): 137-158
Downloads: (external link)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:whu:wpaper:08-04
Access Statistics for this paper
More papers in WHU Working Paper Series - Economics Group from WHU - Otto Beisheim School of Management Contact information at EDIRC.
Bibliographic data for series maintained by Rainer Michael Rilke ().