Intellectual Property Leakage in Supply Chains:

  Multistage Tradeoffs in Outsourcing

  Amiya K. Chakravarty

  DM School of Business

  Northeastern University

  Abstract

 In any outsourcing, the principal must weigh the reduction in manufacturing cost against the risk of intellectual property (IP) misappropriation and the consequent loss of market share. We study a 3-party (principal-supplier-imitator) economic equilibrium in a leader-follower (Stackelberg) setting, where the supplier has the opportunity to leak out IP (acquired from the principal) to an imitator. We are specifically interested in studying the following: the fraction of IP that would be leaked out and the fraction of components that would be outsourced; market entry by the imitator and the implications thereof; and pricing of the IP. We find that it is not in the supplier’s best interest to leak out IP fully, even in the absence of patent-protection. Strategically, the principal may only outsource a fraction of the components C she can prevent the imitator’s entry by outsourcing too few or too many components. The imitator enters the market sufficiently early, if at all. Delayed market-entry helps increase profits of not only the principal but also the supplier.

 We establish that while the outsourced quantities are influenced by imitator’s entry timing, thesupplier’s unit price for the product remains unchanged.

修改日期：2014-10-11