Vertical Restraints and Technology Transfer: Inter-firm Agreements in Eastern Europe's Car Component Industry

We test the relationship between exclusive agreements and technology transfer among firms in the automotive supply industry in EU candidate countries. Exclusive agreements come in bundles, are reciprocal and are passed on up- or downstream. The type of exclusivity employed by a firm depends on its position in the supply chain. Downstream firms are more likely to be subject to and/or impose vertical restraints. Technology trickles upstream: Multinational final assemblers transfer a lot of technology; lower-tier suppliers less. Technology transfer is negatively related to the exclusive agreements that should protect it, suggesting a certain incidence of anti- rather than pro-competitive motives. Complementary case studies reveal three possible motives for vertical restraints. Owners of technology protect their intellectual property; recipients of technology protect investments in relation-specific assets; and either or both engage in attempts to increase market power. This has implications for competition policy in an enlarging Europe.