Relational Contracts, Competition and Innovation: Theory and Evidence from German Car Manufacturers

Giancarlo Spagnolo, Giacomo Calzolari (), Leonardo Felli, Johannes Koenen () and Konrad Stahl

No 12267, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Using unique data from buyer-supplier relationships in the German automotive industry, we unveil a puzzle by which more trust in a relationship is associated with higher idiosyncratic investment, but also more competition. We develop a theoretical model of repeated procurement with non-contractible, buyer-specifi c investments rationalizing both observations. Against the idea that competition erodes rents needed to build trust and sustain relationships, we infer that trust and competition tend to go hand in hand. In our setting trust and rents from reduced supplier competition behave like substitutes, rather than complements as typically understood.

Keywords: Trust; Competition; Hold-up problem; Innovation; Management practices; Procurement; Relational contracts; Specific investment; Supply chains (search for similar items in EconPapers)
JEL-codes: D22 D86 L22 L62 (search for similar items in EconPapers)
Date: 2017-09
New Economics Papers: this item is included in nep-com, nep-cta, nep-ind, nep-ino, nep-mic and nep-soc
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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