Market Must Be Defended: The Role of Counter-Espionage Policy in Maximizing Domestic Market Welfare

Countering economic espionage is becoming one of the priorities of the governments of advanced economies. The present paper takes a step forward in the theoretical analysis of the interaction between economic espionage and counter-espionage by focusing on the case of a market opened to international trade. This analysis represents a first approximation to an inquiry into the rationale for the influence of the market level of competition on the dynamics of such interaction. The results suggest that this influence is complex in the case of the effort exerted in economic espionage and the characteristics of market demand play an important role in it. In the case of the counter-espionage policy, concerned about the domestic welfare generated by the market, it is shown that the level of competition has a negative effect on the effort exerted in it, regardless of the characteristics of market demand and the espionage effort behavior.