Keeping Secrets: The Economics of Access Deterrence

摘要

Keeping valuable secrets requires costly protection efforts. Breaking them requires costly search efforts. In a dynamic model in which the value of the secret decreases with the number of those holding it, we examine the secret holders' protection decisions and the secret breakers' timing of entry, showing that the original secret holder's payoff can be very high, even when protection appears weak, with implications for innovators' profits from unpatented innovations. We show that the path of entry will be characterized by two waves, the first of protected entry followed by a waiting period, and a second wave of unprotected entry.