Exclusive Secrets

Abstract

We investigate the effects of trade secret (TS) protection and relationship-specificity on supplier exclusivity in vertical industrial relations. We highlight how manufacturers restrict their suppliers' buyer network when facing weak TS protection to safeguard sensitive information while ensuring market access to encourage suppliers' investment. Using a unique dataset of automotive parts' contracts, we confirm this intuition by identifying a positive relation between robust TS protection and the number of Original Equipment Manufacturers (OEMs) a supplier serves, particularly for parts of intermediate relation-specificity, aligning with theoretical insights. Consistently, this association amplifies with greater OEMs' bargaining power. We validate these findings by examining supplier attributes, including size, patent portfolio, cartel involvement, and ownership structure.

Keywords: Buyer-supplier relationships, Trade secrets, Exclusive contracts, Misappropriation, Relation-specificity, Hold-up, Automotive industry

JEL Classification: F23, O34, L14, L24, L62