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Competition and trust: evidence from German car manufacturers

By Leonardo Felli, Johannes Koenen and 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

Topics: HB Economic Theory
Publisher: CEPR
Year: 2011
OAI identifier: oai:eprints.lse.ac.uk:35449
Provided by: LSE Research Online
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