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Competition and trust: Evidence from German car manufacturers

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  • Felli, Leonardo
  • Koenen, Johannes
  • Stahl, Konrad O.

Abstract

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. --

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Bibliographic Info

Paper provided by ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research in its series ZEW Discussion Papers with number 11-072.

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Date of creation: 2011
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Handle: RePEc:zbw:zewdip:11072

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Keywords: trust; hold-up problem; competition; specific investment; suppliers; car manufacturers; German automotive industry;

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  1. Jeffrey Butler & Paola Giuliano & Luigi Guiso, 2009. "The Right Amount of Trust," Economics Working Papers ECO2009/33, European University Institute.
  2. Jonathan Levin, 2000. "Relational Incentive Contracts," Working Papers 01002, Stanford University, Department of Economics.
  3. Danzon, Patricia, 1984. "The Frequency and Severity of Medical Malpractice Claims," Journal of Law and Economics, University of Chicago Press, vol. 27(1), pages 115-48, April.
  4. Calzolari, Giacomo & Spagnolo, Giancarlo, 2009. "Relational Contracts and Competitive Screening," CEPR Discussion Papers 7434, C.E.P.R. Discussion Papers.
  5. Bergemann, Dirk & Valimaki, Juuso, 1996. "Learning and Strategic Pricing," Econometrica, Econometric Society, vol. 64(5), pages 1125-49, September.
  6. Kathryn Zeiler & Charles Silver & Bernard Black & David A. Hyman & William M. Sage, 2007. "Physicians' Insurance Limits and Malpractice Payments: Evidence from Texas Closed Claims, 1990-2003," The Journal of Legal Studies, University of Chicago Press, vol. 36(S2), pages S9-S45, 06.
  7. Joni Hersch & Jeffrey O'Connell & W. Kip Viscusi, 2007. "An Empirical Assessment of Early Offer Reform for Medical Malpractice," The Journal of Legal Studies, University of Chicago Press, vol. 36(S2), pages S231-S259, 06.
  8. Taylor, Curtis R & Wiggins, Steven N, 1997. "Competition or Compensation: Supplier Incentives under the American and Japanese Subcontracting Systems," American Economic Review, American Economic Association, vol. 87(4), pages 598-618, September.
  9. Felli, Leonardo & Harris, Christopher, 1996. "Learning, Wage Dynamics, and Firm-Specific Human Capital," Journal of Political Economy, University of Chicago Press, vol. 104(4), pages 838-68, August.
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Cited by:
  1. Dietmar Harhoff & Elisabeth Mueller & John Van Reenen, 2013. "What are the Channels for Technology Sourcing? Panel Data Evidence from German Companies," CEP Discussion Papers dp1193, Centre for Economic Performance, LSE.
  2. Harhoff, Dietmar, 2012. "What are the Channels for Technology Sourcing? Panel Data Evidence from German Companies," Discussion Papers in Business Administration 14327, University of Munich, Munich School of Management.

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