Entry with two correlated signals: the case of industrial espionage and its positive competitive effects

Market must be defended: The role of counter-espionage policy in protecting domestic market welfare

“…However, there are m firms from a foreign country F interested in participating in this market, with a view to supplying the product from their country. Therefore, the government of F , knowing this requirement to participate in the market, decides what level of espionage effort to exert in an attempt to obtain the necessary information to replicate this 7 See Barrachina et al (2014Barrachina et al ( , 2021 and Barrachina (2019) for a more detailed discussion of the sparse theoretical literature analyzing espionage and information-gathering activities not only in economic contexts. 8 The objective of these measures is to thwart the success of economic espionage activties providing programs, protocols and tools at company level.…”

“…The surplus of the m firms from F is SS F n+m , which is given by ( 4), and F 's consumers obtain the surplus βCS n+m , where CS n+m is given by (6). Therefore:…”

“…So, although the paper develops in some depth the general theoretical framework, to avoid these complexities the analysis focuses on a benchmark case in which there is only one firm from F interested in participating in the international market and the product commercialized is only demanded by C's consumers. In this benchmark case, the initial level of market competition always has not only a positive effect on the aggregate welfare of C's market partici-pants, 6 but also a negative one on the welfare generated by the participation of F 's firm in it. These effects are behind the results obtained which, despite avoiding the complexities mentioned above, suggest that the most elemental influence of the initial level of market competition is characterized by a non-trivial relationship between espionage and this level of competition.…”

“…These reductions in efforts, together with the strategic asymmetry between C and F , imply that, on the one hand, a higher initial level of market competition always has a negative effect on the equilibrium counter-espionage effort and, on the other hand, the effect of this higher level of competition on the equilibrium espionage effort depends on the relationship between both reductions, which is influenced by the characteristics of market demand. In particular, an elastic 6 As considered in the last section of the paper together with other potential lines of future research, extending the analysis to the general theoretical framework, and therefore, to cases in which market competition might not have such positive effect, would move this study of counter-espionage even closer to the strand of theoretical research analyzing the desirability of regulation of market entry, briefly presented in the next section of the paper.…”

Contest Copycats: Adversarial Duplication of Effort in Contests

“…A small game-theoretical literature on espionage models the ability to spy on other players' strategies (Matsui, 1989;Solan and Yariv, 2004;Alon et al, 2013;Barrachina et al, 2014), characteristics (Ho, 2008;Wang, 2020;Barrachina et al, 2021), or private signals (Kozlovskaya, 2018;Pavan and Tirole). In the literature on espionage in oligopolistic competition, there are some exceptions, in which players can duplicate their opponents' technologies.…”