Competition and Trust: Evidence from German Car Manufacturers

42 Pages Posted: 18 Jan 2012

See all articles by Leonardo Felli

Leonardo Felli

University of Cambridge; CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR)

Johannes Koenen

ARC Econ GmbH

Konrad O. Stahl

University of Mannheim - Department of Economics; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 3 versions of this paper

Date Written: February 18, 2011

Abstract

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, Specifi c investment, Suppliers, Car manufacturers, German automotive industry

JEL Classification: D86, D22, L22, L62

Suggested Citation

Felli, Leonardo and Koenen, Johannes and Stahl, Konrad O., Competition and Trust: Evidence from German Car Manufacturers (February 18, 2011). ZEW - Centre for European Economic Research Discussion Paper No. 11-072, Available at SSRN: https://ssrn.com/abstract=1987609 or http://dx.doi.org/10.2139/ssrn.1987609

Leonardo Felli (Contact Author)

University of Cambridge ( email )

Trinity Ln
Cambridge, CB2 1TN
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Johannes Koenen

ARC Econ GmbH ( email )

Berliner Platz 13
Limburgerhof, 67117
Germany

HOME PAGE: http://arc-econ.de

Konrad O. Stahl

University of Mannheim - Department of Economics ( email )

D-68131 Mannheim
Germany
+49 621 181 1875 (Phone)
+49 621 181 1874 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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