Title: Protecting intellectual property in low trust environments: game theoretic modelling of overproduction in contract manufacturing

Authors: Zachary A. Collier; Dale A. Henderson; Jerry M. Kopf

Addresses: Department of Management, Radford University, Radford, VA, USA ' Department of Management, Radford University, Radford, VA, USA ' Department of Management, Radford University, Radford, VA, USA

Abstract: The deverticalisation of the global semiconductor supply chain has resulted in the common practice of contract manufacturing, in which a design house outsources fabrication to a third-party manufacturer. Despite cost savings associated with this practice, there exist risks associated with the unauthorised intellectual property use represented by the chip design. For example, overproduction occurs when the manufacturer produces additional units beyond the contracted amount and sells them at a discount, undercutting the design house. We conceptualise and model the overproduction problem as a risky 'make or buy' decision for the chip designer using decision analysis and game theory. We find that when the problem is viewed as an iterated game, strategies emerge to incentivise cooperation between the designer and manufacturer. However, we also find that a means to detect whether overproduction has occurred is required.

Keywords: overproduction; contract manufacturing; outsourcing; supply chain risk management; intellectual property.

DOI: 10.1504/IJIPM.2024.141541

International Journal of Intellectual Property Management, 2024 Vol.14 No.5, pp.444 - 458

Received: 29 May 2023
Accepted: 02 Aug 2023
Published online: 23 Sep 2024 *

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