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...

We identify and investigate the basic "hold-up" problem which arises whenever each party to a contingent contract has to pay some ex-ante cost for the contract to become feasible. We then proceed to show that, under plausible circumstances, a "contractual solution" to this hold-up problem is not...