Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/201906 
Year of Publication: 
2019
Series/Report no.: 
CESifo Working Paper No. 7680
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
Based on data from a comprehensive benchmarking study on buyer-supplier relationships in the German automotive industry, we show that more trust in a relationship is associated with higher idiosyncratic investment by suppliers and better part quality - but also with more competition among suppliers. Both associations hold only for parts involving comparatively unsophisticated technology, and disappear for parts involving sophisticated technology. We rationalize all these observations by means of a relational contracting model of repeated procurement with non-contractible, buyer-specific investments. In relationships involving higher trust, buyers are able to induce higher investment and more intense competition among suppliers - but only when the buyer has the bargaining power. This ability disappears when the bargaining power resides with the supplier(s).
Subjects: 
relational contracts
hold-up
buyer-supplier contracts
bargaining power
JEL: 
D86
L14
L62
O34
Document Type: 
Working Paper
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