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Faculty of Economics


Calzolari, G., Felli, L., Koenen, J., Spagnolo, G. and Stahl, K. O.

Relational Contracts and Trust in a High-Tech Industry


Abstract: We study how informal buyer-supplier relationships in the German automotive industry affect procurement. Using unique data from a survey focusing on these, we show that more trust, the belief that the trading partner acts to maintain the mutual relationship, is associated with both higher quality of the automotive parts and more competition among suppliers. Yet both effects hold only for parts involving unsophisticated technology, not when technology is sophisticated. We rationalize these findings within a relational contracting model that critically focuses on changes in the bargaining power, due to differences in the costs of switching suppliers.

Keywords: Bargaining Power, Buyer-Supplier Contracts, Hold-up, Relational Contracts

JEL Codes: D86 L14 L62 O34

Author links: Leonardo Felli  


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