DP8265 Competition and Trust: Evidence from German Car Manufacturers
|Author(s):||Leonardo Felli, Johannes Koenen, Konrad O Stahl|
|Publication Date:||February 2011|
|Keyword(s):||Car manufacturers, Competition, German automotive industry, Hold-up problem, Specific investment, Suppliers, Trust|
|JEL(s):||D22, D86, L22, L62|
|Programme Areas:||Industrial Organization|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=8265|
We explore the determinants and effects of trust relationships between upstream suppliers and downstream producers. Using unique survey data on individual supplier-buyer relationships in the German automotive industry, we show, by means of different measures of supplier-buyer trust, that higher levels of trust mitigate relationship-specific underinvestment in a classical hold-up situation. Moreover, contrary to the extant literature, we show that higher levels of supplier's trust are reflected in the buyer's choice of a more competitive procurement strategy among potential suppliers.