Trust and Power: Supply Chain Organization and Patterns of Competition in the French, Italian, and German Quality Wine Markets

Friday, 3 July 2015: 2:15 PM-3:45 PM
CLM.2.04 (Clement House)
Betsy Carter, University of California Irvine, Irvine, CA
A principal challenge of producers lies in solving problems of market asymmetries within the supply chain, namely asymmetries of information and of asymmetries of market power. This paper begins with the premise that how producers solve the problem of market asymmetries is a result of patterns of trust. Building upon Reinhard Bachmann’s juxtaposition between “personal trust” and “system trust” in German and British industry, this paper considers the relationship between personal trust, system trust, and institutional environment in shaping patterns of producer market cooperation in the French, Italian, and German wine industries. I also investigate Bachman’s theory on the relationship between trust and power, where strong institutional environments support what he calls “systems power” and fragmented institutional contexts support the use of personal power in supply chain relations. Drawing upon in-depth personal interviews, the findings indicate three distinct patterns of trust, producer cooperation, institutional environment, and patterns of power in regulated quality wine production. I relate these patterns to market outcomes, specifically: the French pattern of high-value added, inflexible production in a high trust, high systems power context; the Italian pattern of high competition, less-value added, innovative production, in a low system trust, high personal power context; and finally the German pattern of high trust, high systems power, in a less-value added, less flexible, high quality perception context. In the French case, higher levels of vertical supply chain cooperation and national protection proved critical in creating shared geographic brands, maintaining price protection, and constructing the perception of a differentiated product. The Italian case is generally characterized by power asymmetries within the supply chain and within producer groups, limiting their ability to construct high levels of vertical supply chain cooperation. Quality German producers tend to vertically integrate production and exhibit innovative, high-trust production networks across producers groups, leading to high quality, limited quantity production clusters of small producers groups.