Template-Type: ReDIF-Paper 1.0
Title: Trust, Investment and Competition: Theory and Evidence From German Car Manufacturers
Author-Name: Giacomo Calzolari
Author-Email: 
Author-Name: Leonardo Felli
Author-Email:
Author-Name: Johannes Koenen
Author-Email:
Author-Name: Giancarlo Spagnolo
Author-Email:
Author-Name: Konrad O. Stahl
Author-Email: 
Classification-JEL: D860, L14
Keywords: Relational Contracts, Hold-up, Buyer-Supplier Contracts

Abstract: Based on data from a comprehensive benchmarking study on buyer-supplier
relationships in the German automotive industry, we show that more trust in a
relationship is associated with higher idiosyncratic investment by suppliers and
better part quality|but also with more competition among suppliers. Both associations hold only for parts involving comparatively unsophisticated technology,
and evaporate for parts involving sophisticated technology. We rationalize all these
observations by means of a relational contracting model of repeated procurement
with non-contractible, buyer-specific investments. In relationships involving higher
trust, buyers are able to induce higher investment and more intense competition
among suppliers|but only when the buyer has the bargaining power. This ability
disappears when the bargaining power resides with the supplier(s).

Note: 
Length: 59
Creation-Date: 2019-04
Revision-Date: 
File-URL: https://www.crctr224.de/research/discussion-papers/archive/dp081
File-Format: application/pdf
Handle: RePEc:bon:boncrc:CRCTR224_2019_081