Information Hostage: Inter-Firm Proprietary Information Sharing and Supply Chain Lock-In
Enshuai Yu

Boston College

Abstract

This study investigates whether and how proprietary information sharing impacts supply chain lock-in. Using a hand-collected dataset of supply chain contracts, I develop a contract-based measure of customer-to-supplier proprietary information sharing in supply chains, captured by the intensity of confidentiality provisions. Validation tests show that this measure correlates positively with customer firms^ proprietary cost concerns, and that higher-confidentiality-intensity contracts are linked to improved suppliers^ managerial learning, particularly in information environments, investment, and innovation. Main analyses indicate that supply chain relationships involving greater proprietary information sharing are more prone to lock-in, as reflected in longer ex-post durations and a lower likelihood of termination following adverse supplier events (e.g., regulatory, competitive, or financial disruptions). These lock-in effects are more salient when customer firms face intense competition, rivals are highly innovative, alternative suppliers are readily available, or the focal relationship is the sole conduit for proprietary information exchange. To address endogeneity concerns, I leverage two plausibly exogenous shocks that alter the proprietary value of information already shared with suppliers in opposite directions, and find that decreases (increases) in proprietary value weaken (strengthen) supply chain lock-in, resulting in more (fewer) relationship terminations. Collectively, the findings highlight contracting frictions induced by proprietary inter-firm information exchange along the supply chain.

Keywords: Supply Chain- Inter-Firm Information Sharing- Proprietary Information- Real Effects- Managerial Learning- Switching Costs

Topic: Economic Welfare in Terms of Islamic Perspective