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

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

No 5229, CESifo Working Paper Series from CESifo

Abstract: We develop a simple theoretical model of a long term buyer-supplier relationship with non-contractible buyer specific R&D investment, and derive predictions on the effects of trust and competition on suppliers’ investment and buyers’ procurement strategies. We address these issues empirically using unique survey data on individual buyer-supplier relationships in the German automotive industry. Consistent with the model’s predictions, higher levels of trust are associated with higher investment levels - but also with more competitive procurement: trust and rents from reduced supplier competition in the procurement process emerge as substitutes both in theory and in the data.

Keywords: trust; hold-up problem; competition; innovation; specific investment; procurement; relational contracts; management practices; suppliers; car manufacturers; German automotive industry (search for similar items in EconPapers)
JEL-codes: D22 D86 L22 L62 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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