Trust, Competition and Innovation: Theory and Evidence from German Car Manufacturers

52 Pages Posted: 12 Mar 2015

See all articles by Giacomo Calzolari

Giacomo Calzolari

European University Institute - Economics Department (ECO); Centre for Economic Policy Research (CEPR); University of Bologna

Leonardo Felli

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

Johannes Koenen

ARC Econ GmbH

Giancarlo Spagnolo

Stockholm School of Economics (SITE); Centre for Economic Policy Research (CEPR); University of Rome 'Tor Vergata'; EIEF

Konrad O. Stahl

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

Date Written: February 28, 2015

Abstract

We develop a simple theoretical model of a long term buyer-supplier relationship with non-contractible buyer specific R&D investment, and derive predictions on the effects of trust and competition on suppliers’ investment and buyers’ procurement strategies. We address these issues empirically using unique survey data on individual buyer-supplier relationships in the German automotive industry. Consistent with the model’s predictions, higher levels of trust are associated with higher investment levels - but also with more competitive procurement: trust and rents from reduced supplier competition in the procurement process emerge as substitutes both in theory and in the data.

Keywords: trust, hold-up problem, competition, innovation, specific investment, procurement, relational contracts, management practices, suppliers, car manufacturers, German automotive industry

JEL Classification: D860, D220, L220, L620

Suggested Citation

Calzolari, Giacomo and Felli, Leonardo and Koenen, Johannes and Spagnolo, Giancarlo and Stahl, Konrad O., Trust, Competition and Innovation: Theory and Evidence from German Car Manufacturers (February 28, 2015). CESifo Working Paper Series No. 5229, Available at SSRN: https://ssrn.com/abstract=2576632

Giacomo Calzolari

European University Institute - Economics Department (ECO) ( email )

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Centre for Economic Policy Research (CEPR) ( email )

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University of Bologna ( email )

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HOME PAGE: http://sites.google.com/view/giacomo-calzolari

Leonardo Felli

University of Cambridge, Faculty of Economics ( email )

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HOME PAGE: http://www.felli.info

CESifo (Center for Economic Studies and Ifo Institute)

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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

Giancarlo Spagnolo

Stockholm School of Economics (SITE) ( email )

P.O. Box 6501
Stockholm
Sweden

HOME PAGE: http://https://sites.google.com/site/giancarlospagnoloshomepage/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

University of Rome 'Tor Vergata' ( email )

Faculty of Economics - DEI
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Rome, RM 00133
Italy

EIEF ( email )

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Italy

HOME PAGE: http://WWW.EIEF.IT

Konrad O. Stahl (Contact Author)

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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