Citation

Discussion Paper Details

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Title: Relational Contracts, Competition and Innovation: Theory and Evidence from German Car Manufacturers

Author(s): Giacomo Calzolari, Leonardo Felli, Johannes Koenen, Giancarlo Spagnolo and Konrad O Stahl

Publication Date: September 2017

Keyword(s): Competition, Hold-up Problem, Innovation, Management Practices, Procurement, Relational Contracts, Specific Investment, Supply Chains and Trust

Programme Area(s): Industrial Organization

Abstract: Using unique data from buyer-supplier relationships in the German automotive industry, we unveil a puzzle by which more trust in a relationship is associated with higher idiosyncratic investment, but also more competition. We develop a theoretical model of repeated procurement with non-contractible, buyer-specific investments rationalizing both observations. Against the idea that competition erodes rents needed to build trust and sustain relationships, we infer that trust and competition tend to go hand in hand. In our setting trust and rents from reduced supplier competition behave like substitutes, rather than complements as typically understood.

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Bibliographic Reference

Calzolari, G, Felli, L, Koenen, J, Spagnolo, G and Stahl, K. 2017. 'Relational Contracts, Competition and Innovation: Theory and Evidence from German Car Manufacturers'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=12267