Competition and Trust: Evidence from German Car Manufacturers
42 Pages Posted: 18 Jan 2012
Date Written: February 18, 2011
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.
Keywords: Trust, Hold-up problem, Competition, Specific investment, Suppliers, Car manufacturers, German automotive industry
JEL Classification: D86, D22, L22, L62
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