Governing Supply Relationships: Evidence from the Automotive Industry

40 Pages Posted: 13 Oct 2017

See all articles by Alexander Schmitt

Alexander Schmitt

KU Leuven; Flanders Research Foundation (FWO)

Johannes Van Biesebroeck

K.U.Leuven; Centre for Economic Policy Research (CEPR)

Date Written: August 2017


A large empirical literature analyzes determinants of the make-or-buy decision. Transaction cost economics highlights the role of asset specificity, the property rights theory focuses on the relative marginal contributions to joint surplus creation, and some evidence suggests that making transactions more contractible facilitates outsourcing. We use a unique transaction-level dataset of outsourced automotive components to predict carmakers’ choices between four distinct ways of organizing sourcing relationships. We derive conditional predictions for three characteristics: (i) the complexity or contractibility of a transaction, (ii) how objectively codifiable performance is, and (iii) the supplier’s capabilities. For example, while dominant buyer investments might predict vertical integration, as in the property rights theory, other characteristics might convince a buyer to simply re-organize the collaboration with the supplier in a more suitable way. Our results suggest that “buy” relationships differ systematically and that the predictive power of our variables extend from the make-or-buy decision to how-to-buy.

Suggested Citation

Schmitt, Alexander and Van Biesebroeck, Johannes, Governing Supply Relationships: Evidence from the Automotive Industry (August 2017). Available at SSRN: or

Alexander Schmitt (Contact Author)

KU Leuven ( email )

Naamsestraat 69
Leuven, B-3000
+32-16373709 (Phone)
+32-16326796 (Fax)


Flanders Research Foundation (FWO) ( email )

Egmontstraat 5
Brussels, 1000

Johannes Van Biesebroeck

K.U.Leuven ( email )

Naamsestraat 69
B-3000 Leuven
+3216326793 (Phone)
+3216326796 (Fax)


Centre for Economic Policy Research (CEPR) ( email )

United Kingdom

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