Calzolari, Giacomo Felli, Leonardo Koenen, Johannes Spagnolo, Giancarlo Stahl, Konrad O.
Year of Publication:
CESifo Working Paper No. 5229
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.
trust hold-up problem competition innovation specific investment procurement relational contracts management practices suppliers car manufacturers German automotive industry