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Competition and Trust: Evidence from German Car Manufacturers

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

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-buyertrust, tha thigher 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 Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich in its series Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems with number 349.

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Date of creation: Feb 2011
Date of revision:
Handle: RePEc:trf:wpaper:349
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  1. Jonathan Levin, 2003. "Relational Incentive Contracts," American Economic Review, American Economic Association, vol. 93(3), pages 835-857, June.
  2. 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.
  3. Bergemann, Dirk & Valimaki, Juuso, 1996. "Learning and Strategic Pricing," Econometrica, Econometric Society, vol. 64(5), pages 1125-49, September.
  4. Jeffrey Butler & Paola Giuliano & Luigi Guiso, 2009. "The Right Amount of Trust," EIEF Working Papers Series 0908, Einaudi Institute for Economics and Finance (EIEF), revised Sep 2009.
  5. L. Bottazzi & M. Da Rin & T. Hellmann, 2007. "The Importance of Trust for Investment: Evidence from Venture Capital," Working Papers 612, Dipartimento Scienze Economiche, Universita' di Bologna.
  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. Calzolari, Giacomo & Spagnolo, Giancarlo, 2009. "Relational Contracts and Competitive Screening," CEPR Discussion Papers 7434, C.E.P.R. Discussion Papers.
  9. Luigi Guiso & Paola Sapienza & Luigi Zingales, 2005. "Trusting the Stock Market," NBER Working Papers 11648, National Bureau of Economic Research, Inc.
  10. 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.
  11. 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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