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

61 Pages Posted: 30 May 2019

See all articles by Giacomo Calzolari

Giacomo Calzolari

European University Institute - Economics Department (ECO); Centre for Economic Policy Research (CEPR); University of Bologna

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

Giancarlo Spagnolo

University of Rome Tor Vergata; EIEF; Centre for Economic Policy Research (CEPR); Stockholm School of Economics (SITE)

Konrad O. Stahl

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

Multiple version iconThere are 2 versions of this paper

Date Written: May 2019

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).

Keywords: bargaining power, Buyer-Supplier Contracts, hold-up, Relational Contracts

JEL Classification: D86, L14, L62, O34

Suggested Citation

Calzolari, Giacomo and Felli, Leonardo and Koenen, Johannes and Spagnolo, Giancarlo and Stahl, Konrad O., Trust, Investment and Competition: Theory and Evidence from German Car Manufacturers (May 2019). CEPR Discussion Paper No. DP13750, Available at SSRN: https://ssrn.com/abstract=3395187

Giacomo Calzolari (Contact Author)

European University Institute - Economics Department (ECO) ( email )

Villa la Fonte
Via delle fontanelle 18
San Domenico di Fiesole, Florence 50014
Italy

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

University of Bologna ( email )

Piazza Scaravilli 2
I-40126 Bologna
Italy

HOME PAGE: http://sites.google.com/view/giacomo-calzolari

Leonardo Felli

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

Giancarlo Spagnolo

University of Rome Tor Vergata ( email )

Faculty of Economics - DEF
Via Columbia 2
Rome, RM 00133
Italy

EIEF ( email )

Via Due Macelli, 73
Rome, 00187
Italy

HOME PAGE: http://WWW.EIEF.IT

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Stockholm School of Economics (SITE) ( email )

P.O. Box 6501
Stockholm
Sweden

HOME PAGE: http://https://sites.google.com/site/giancarlospagnoloshomepage/

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

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
1
Abstract Views
632
PlumX Metrics