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Competition and Trust: Evidence from German Car Manufacturers

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  • Stahl, Konrad
  • Felli, Leonardo
  • Koenen, Johannes

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.

Suggested Citation

  • Stahl, Konrad & Felli, Leonardo & Koenen, Johannes, 2011. "Competition and Trust: Evidence from German Car Manufacturers," CEPR Discussion Papers 8265, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:8265
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    Cited by:

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    2. Konrad Stahl & Roland Strausz, 2017. "Certification and Market Transparency," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 84(4), pages 1842-1868.
    3. Nicholas Argyres & Janet Bercovitz & Giorgio Zanarone, 2020. "The role of relationship scope in sustaining relational contracts in interfirm networks," Strategic Management Journal, Wiley Blackwell, vol. 41(2), pages 222-245, February.

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    More about this item

    Keywords

    Car manufacturers; Competition; German automotive industry; Hold-up problem; Specific investment; Suppliers; Trust;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • 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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