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Relational Contracts, Competition and Innovation: Theory and Evidence from German Car Manufacturers

Author

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  • Calzolari, Giacomo
  • Felli, Leonardo
  • Koenen, Johannes
  • Spagnolo, Giancarlo
  • Stahl, Konrad O

Abstract

Using unique data from buyer-supplier relationships in the German automotive industry, we unveil a puzzle by which more trust in a relationship is associated with higher idiosyncratic investment, but also more competition. We develop a theoretical model of repeated procurement with non-contractible, buyer-specifi c investments rationalizing both observations. Against the idea that competition erodes rents needed to build trust and sustain relationships, we infer that trust and competition tend to go hand in hand. In our setting trust and rents from reduced supplier competition behave like substitutes, rather than complements as typically understood.

Suggested Citation

  • Calzolari, Giacomo & Felli, Leonardo & Koenen, Johannes & Spagnolo, Giancarlo & Stahl, Konrad O, 2017. "Relational Contracts, Competition and Innovation: Theory and Evidence from German Car Manufacturers," CEPR Discussion Papers 12267, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:12267
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    References listed on IDEAS

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    1. Nicholas Bloom & Renata Lemos & Raffaella Sadun & Daniela Scur & John Van Reenen, 2014. "The New Empirical Economics of Management," NBER Working Papers 20102, National Bureau of Economic Research, Inc.
    2. Ola Kvaløy & Trond E. Olsen, 2009. "Endogenous Verifiability and Relational Contracting," American Economic Review, American Economic Association, vol. 99(5), pages 2193-2208, December.
    3. Dimitri,Nicola & Piga,Gustavo & Spagnolo,Giancarlo (ed.), 2006. "Handbook of Procurement," Cambridge Books, Cambridge University Press, number 9780521870733, May.
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    Cited by:

    1. Oliver Falck & Johannes Koenen, 2020. "Rohstoff „Daten“: Volkswirtschaflicher Nutzen von Datenbereitstellung – eine Bestandsaufnahme," ifo Forschungsberichte, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 113, October.
    2. Oksana Loginova & Niladri B. Syam, 2020. "Sourcing Co-Created Products: Should Your Suppliers Collaborate on Cost Reductions?," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 56(2), pages 329-355, March.
    3. Oliver Falck & Johannes Koenen, 2020. "Resource “Data”: Economic Benefits of Data Provision," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 21(03), pages 31-41, September.

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    More about this item

    Keywords

    Competition; Hold-up Problem; Innovation; Management Practices; Procurement; Relational Contracts; Specific Investment; Supply Chains; Trust;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L62 - Industrial Organization - - Industry Studies: Manufacturing - - - Automobiles; Other Transportation Equipment; Related Parts and Equipment

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