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Competition and Trust: Evidence from German Car Manufacturers

  • Leonardo Felli
  • Johannes Koenen


  • Konrad O. Stahl

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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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3358.

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Date of creation: 2011
Date of revision:
Handle: RePEc:ces:ceswps:_3358
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  1. Luigi Guiso & Paola Sapienza & Luigi Zingales, 2005. "Trusting the Stock Market," NBER Working Papers 11648, National Bureau of Economic Research, Inc.
  2. Jeffrey Butler & Paola Giuliano & Luigi Guiso, 2009. "The Right Amount of Trust," NBER Working Papers 15344, National Bureau of Economic Research, Inc.
  3. Jonathan Levin, 2003. "Relational Incentive Contracts," American Economic Review, American Economic Association, vol. 93(3), pages 835-857, June.
  4. 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.
  5. Calzolari, Giacomo & Spagnolo, Giancarlo, 2009. "Relational Contracts and Competitive Screening," CEPR Discussion Papers 7434, C.E.P.R. Discussion Papers.
  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. Bergemann, Dirk & Valimaki, Juuso, 1996. "Learning and Strategic Pricing," Econometrica, Econometric Society, vol. 64(5), pages 1125-49, September.
  8. 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.
  9. 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.
  10. 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.
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