Working Paper: CEPR ID: DP8265
Authors: Leonardo Felli; Johannes Koenen; Konrad O. Stahl
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: car manufacturers; competition; German automotive industry; hold up problem; specific investment; suppliers; trust
JEL Codes: D22; D86; L22; L62
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Trust (G21) | Relationship-specific investment (E22) |
| Trust (G21) | Competitive procurement strategy (H57) |
| Competitive procurement strategy (H57) | Trust (G21) |