Competition and Trust: Evidence from German Car Manufacturers
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 supplierâ€™s trust are reflected in the buyerâ€™s choice of a more competitive procurement strategy among potential suppliers.
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