DP16653 Relational Contracts and Trust in a High-Tech Industry
|Author(s):||Giacomo Calzolari, Leonardo Felli, Johannes Koenen, Giancarlo Spagnolo, Konrad O Stahl|
|Publication Date:||October 2021|
|Keyword(s):||bargaining power, Buyer-Supplier Contracts, hold-up, Relational Contracts|
|JEL(s):||D86, L14, L62, O34|
|Programme Areas:||Industrial Organization, Organizational Economics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=16653|
We study how informal buyer-supplier relationships in the German automotive industry aï¬?ect procurement. Using unique data from a survey focusing on these, we show that more trust, the belief that the trading partner acts to maintain the mutual relationship, is associated with both higher quality of the automotive parts and more competition among suppliers. Yet both eï¬?ects hold only for parts involving unsophisticated technology, not when technology is sophisticated. We rationalize these ï¬?ndings within a relational contracting model that critically focuses on changes in the bargaining power, due to diï¬?erences in the costs of switching suppliers.