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.