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

Author

Listed:
  • Giacomo Calzolari
  • Leonardo Felli
  • Johannes Koenen
  • Giancarlo Spagnolo
  • Konrad O. Stahl

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.

Suggested Citation

  • Giacomo Calzolari & Leonardo Felli & Johannes Koenen & Giancarlo Spagnolo & Konrad O. Stahl, 2015. "Trust, Competition and Innovation: Theory and Evidence from German Car Manufacturers," CESifo Working Paper Series 5229, CESifo.
    • Handle: RePEc:ces:ceswps:_5229
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    References listed on IDEAS

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    Cited by:

    1. Yeon-Koo Che & Elisabetta Iossa & Patrick Rey, 2021. "Prizes versus Contracts as Incentives for Innovation [Subgame Perfect Implementation Under Information Perturbations]," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 88(5), pages 2149-2178.
    2. Elisabetta Iossa & Federico Biagi & Paola Valbonesi, 2018. "Pre-commercial procurement, procurement of innovative solutions and innovation partnerships in the EU: rationale and strategy," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 27(8), pages 730-749, November.
    3. Ricard Gil & Giorgio Zanarone, 2016. "New Frontiers in Empirical Research on Informal Contracting," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 172(2), pages 390-407, June.
    4. Dinah Cohen-Vernik & Oksana Loginova & Niladri B. Syam, 2016. "Sourcing Co-Created Products: Should your Suppliers Collaborate?," Working Papers 1618, Department of Economics, University of Missouri, revised 14 Aug 2018.

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    More about this item

    Keywords

    trust; hold-up problem; competition; innovation; specific investment; procurement; relational contracts; management practices; suppliers; car manufacturers; German automotive industry;
    All these keywords.

    JEL classification:

    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L62 - Industrial Organization - - Industry Studies: Manufacturing - - - Automobiles; Other Transportation Equipment; Related Parts and Equipment

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