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Slice to Protect

Author

Listed:
  • Eppinger, Peter
  • Kukharskyy, Bohdan
  • Naghavi, Alireza
  • Ottaviano, Gianmarco

Abstract

We examine how firms strategically slice up global production processes to protect proprietary knowhow. By sourcing fewer inputs from each supplier, firms avoid the concentration of information in the hands of individual suppliers and thereby reduce the risk of imitation. Using rich micro data on firm-to-firm trade in automotive components, we uncover a robust U-shaped relationship between the number of components sourced per supplier (concentration) and the strength of intellectual property rights (IPR) protection. This U-shape can be rationalized by a combination of a protective effect and a compositional effect of IPR institutions. In countries with weak IPR protection, firms source only low-tech components, for which imitation is irrelevant, so concentration is optimal. At intermediate IPR levels, they buy more high-tech, imitation-prone components and therefore ‘slice to protect’. Under strong IPR regimes, imitation risk is minimal and concentration is highest. Empirically, weak IPR institutions strongly predict slicing of high-tech components.

Suggested Citation

  • Eppinger, Peter & Kukharskyy, Bohdan & Naghavi, Alireza & Ottaviano, Gianmarco, 2026. "Slice to Protect," CEPR Discussion Papers 21535, Centre for Economic Policy Research.
    • Handle: RePEc:cpr:ceprdp:21535
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    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital

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