Journal of the European Economic Association
Exclusive Secrets,
2026-09-03
We investigate the effects of trade secret (TS) protection on supplier exclusivity in vertical industrial relations. We show that manufacturers limit their suppliers’ buyer networks under weak TS protection to safeguard sensitive information while encouraging supplier investment. Using worldwide automotive parts contracts data, we find that weak TS protection constrains suppliers to serve only a few Original Equipment Manufacturers (OEMs), sometimes leading to exclusivity, especially for parts with intermediate relationship-specificity. This association strengthens with greater OEM bargaining power, aligning with theoretical insights. We validate these findings by examining supplier attributes, including size, cartel involvement, and ownership structure. F23, O34, L14, L24, L62