Competition and Trust: Evidence from German Car Manufacturers

39 Pages Posted: 24 Feb 2011

See all articles by Leonardo Felli

Leonardo Felli

University of Cambridge, Faculty of Economics; CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR)

Johannes Koenen

ARC Econ GmbH

Konrad O. Stahl

University of Mannheim - Department of Economics; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 3 versions of this paper

Date Written: February 23, 2011

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.

Keywords: trust, hold-up problem, competition, specific investment, suppliers, car manufacturers, German automotive industry

JEL Classification: D860, D220, L220, L620

Suggested Citation

Felli, Leonardo and Koenen, Johannes and Stahl, Konrad O., Competition and Trust: Evidence from German Car Manufacturers (February 23, 2011). CESifo Working Paper Series No. 3358, Available at SSRN: https://ssrn.com/abstract=1767874

Leonardo Felli (Contact Author)

University of Cambridge, Faculty of Economics ( email )

Austin Robinson Building
Sidgwick Avenue
Cambridge, CB3 9DD
United Kingdom
+44 1223 335221 (Phone)

HOME PAGE: http://www.felli.info

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Johannes Koenen

ARC Econ GmbH ( email )

Berliner Platz 13
Limburgerhof, 67117
Germany

HOME PAGE: http://arc-econ.de

Konrad O. Stahl

University of Mannheim - Department of Economics ( email )

D-68131 Mannheim
Germany
+49 621 181 1875 (Phone)
+49 621 181 1874 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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