Poaching and the Misappropriation of Information: An Increasingly Important Form of Opportunism

We introduce the concept of poaching, the risk that in any contractual relationship information that is transferred between parties for purposes specified in the contract will deliberately be used by the receiving party, for purposes outside the contract, to its own economic benefit, and to the detriment of the party that provided the information. We argue that this form of transaction risk, a component of transactions costs, is increasingly important in our service-centered, information-driven, post-industrial economy. More specifically, we demonstrate the following: • This form of risk is increasingly significant as firms form alliances and cooperative ventures for speed to market in an internet economy, and as new entrants and smaller firms form these alliances to gain access to scarce, traditional resources. • This form of risk has not previously been studied in the more traditional, neoclassical transactions cost economics literature, as the form of asset under consideration is not consumed through use and cannot be returned after contract termination, making allocation of ownership, the cornerstone of transactions cost and incomplete contracts theories, ineffectual. Moreover, while we address the principal questions of transactions costs economics — how can risks be managed to increase the likelihood that economically efficient contracts can actually be reached — and use the terminology and philosophy of this discipline, the problem we study and the findings we derive are fundamentally different from those that have come before this work. Combining case examples and mathematical modeling, we show and discuss the conditions under which shared information creates the potential for poaching, examine the impact and efficacy of traditional remedies for contractual problems, and identify new mechanisms for managing poaching risk. Our analysis suggests the presence of poaching risk can substantially alter the predictions of transactions cost economics and other theories of inter-firm relationships, and warrants greater focus by both researchers and practitioners in the design of contracts for information technology procurement and technology-based services.