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Trust in Vertical Relations

Author

Listed:
  • Giacomo Calzolari
  • Leonardo Felli
  • Johannes Koenen
  • Giancarlo Spagnolo
  • Konrad Stahl

Abstract

Using data from a unique survey on all buyers and crtical suppliers in German automotive production, we explore the role of trust in long-term procurement relationships. Higher trust leads to higher quality of the automotive parts, and to more competition among suppliers. These effects are significant for low-tech parts only, and not for high tech ones, even when the buyer procures parts from the same supplier. We rationalize these unexpected findings within a relational contracting model, where technology-specific differences in the cost of switching suppliers determine the bargaining power in part-specific procurement relationships.

Suggested Citation

  • Giacomo Calzolari & Leonardo Felli & Johannes Koenen & Giancarlo Spagnolo & Konrad Stahl, 2024. "Trust in Vertical Relations," CRC TR 224 Discussion Paper Series crctr224_2024_530, University of Bonn and University of Mannheim, Germany.
    • Handle: RePEc:bon:boncrc:crctr224_2024_530
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    References listed on IDEAS

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    More about this item

    Keywords

    Relational Contracts; Hold-up; Buyer-Supplier Contracts; Bargaining Power;
    All these keywords.

    JEL classification:

    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L62 - Industrial Organization - - Industry Studies: Manufacturing - - - Automobiles; Other Transportation Equipment; Related Parts and Equipment
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital

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