Keiretsu and relationship-specific investment: A barrier to trade?

This article develops a model of informal procurement within Japanese keire tsu so as to consider effects on intermediate-good imports, such as auto pa rts. Parts-suppliers make relationship-specific investments that benefit th e automaker and prices are determined by bargaining after investment has be en sunk. Although this investment raises efficiency, it limits the range of imports to less important parts, such as tailpipes, and it is possible tha t no parts are imported, despite lower foreign costs. Lack of information c oncerning investment rents combined with counterintuitive responses of impo rts to chances in output and costs could create unwarranted perceptions of a trade barrier.