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An economic analysis of trade-secret protection in buyer-seller relationships

  • 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 …nd 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.

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Metadaten
Author:Felix Höffler, Stefan Bechthold
URN:urn:nbn:de:hbz:992-opus4-5166
Series (Serial Number):WHU – Working Paper Series in Economics (WP 08/04)
Publisher:WHU - Otto Beisheim School of Management
Place of publication:Vallendar
Document Type:Working Paper
Language:English
Date of Publication (online):2017/11/22
Date of first Publication:2008/06/01
Release Date:2017/11/22
Tag:"Hold-up"-Probleme; Geschäftsgeheimnisse; Offenlegung von Informationen
Disclosure of information; Hold-up problems; Trade secrets
Page Number:28
Institutes:WHU Economics Group / Lehrstuhl für Volkswirtschaftslehre, insbesondere für Regulierungsökonomik und Stiftungslehrstuhl der Deutsche Post Stiftung
JEL-Classification:D Microeconomics / D8 Information, Knowledge, and Uncertainty / D82 Asymmetric and Private Information
K Law and Economics / K2 Regulation and Business Law
Licence (German):Copyright for this publication