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ispartof: International Journal of Industrial Organization vol:44 pages:41-59 status: published

ispartof: CES - Discussion paper series, DPS13.13 pages:1-40 status: published

Public intervention in the automotive industry has a long, global history. In Europe, both, individual member states and the European Union (EU), often allocate public resources to automobile manufacturers through a wide variety of instruments and institutions. This willingness to offer support to the automotive industry was especially evident during the financial and economic crisis of 2009 when this sector was particularly hard hit. Against this backdrop, a recent study funded jointly by ZEW's SEEK Research Programme and the Finance Programme at the University of Leuven outlines and quantifies the different forms that public support to the European auto industry has taken over the past decade.

Staatliche Eingriffe in die Automobilindustrie haben eine lange, globale Geschichte. So stellen in Europa häufig sowohl einzelne Mitgliedstaaten als auch die Europäische Union (EU) den Automobilherstellern staatliche Ressourcen mithilfe unterschiedlichster Instrumente und über den Weg verschiedener Institutionen zur Verfügung. Die Bereitschaft, der Automobilindustrie Unterstützung anzubieten, war vor allem während der Finanz- und Wirtschaftskrise 2009 deutlich zu beobachten, die diesen Sektor besonders hart getroffen hatte. Vor diesem Hintergrund beschäftigt sich eine aktuelle Studie, die gemeinsam vom ZEW-Forschungsprogramm SEEK und dem Kompetenzzentrum "Governments and markets: Institutions and regulation for a changing world" der Universität Leuven (Belgien) finanziert wurde, mit den verschiedenen Arten staatlicher Unterstützung, welche die europäische Automobilindustrie über die letzten zehn Jahre erfahren hat, und quantifiziert diese.

We study the effects of the car scrapping subsidies in Europe during the financial crisis. We make use of a rich data set of all car models sold in nine European countries, observed at a monthly level during 2005-2011.We employ a difference-in-differences approach, exploiting the fact that different countries adopted their programs at different points in time. We find that the scrapping schemes played a strong role in stabilizing total car sales in 2009: they prevented a total car sales reduction of 17.4% in countries with schemes targeted to low emission vehicles, and they prevented a 14.8% sales reduction in countries with non-targeted schemes. In contrast, the scrapping schemes only had small environmental benefits: without the schemes, average fuel consumption of new purchased cars would have been only 1.3% higher in countries with targeted schemes and 0.5% higher in countries with non-targeted schemes. We do not find evidence of crowding out due to substitution from non-eligible to eligible cars in countries with targeted schemes. Finally, we identify some competitive and trade effects from the schemes: domestic car producers benefited at the expense of foreign competitors in the countries where the schemes were not targeted.

We provide an overview of public support for the European car industry during the past decade. First, we identify the most relevant instruments of public support, and review their economic assessment. The European Commission increasingly recognizes the role of economic analysis in controlling public aid to the car industry, although the degree of economic assessment varies across different instruments of public support and individual state aid cases. Moreover, the state aid legislative framework is open to derogations and interpretations. In particular, the Temporary Framework, approved by the Commission to tackle the last financial and economic crisis de facto implied a relaxation of the state aid rules and foresaw no formal control of individual state aids. Second, we aim to estimate the amount of public support for European car manufacturers. Three factors complicate the overall quantification of public support for each instrument: (i) the Commission does not scrutinize, and hence does not quantify all public support measures; (ii) the available information depends on whether the state aid is granted to individual companies or in the form of general schemes; and (iii) the available information depends on whether the aid is granted in the form of a grant, soft loan or guarantee. Our lower bound estimate of state aid suggests that the aid declined over the pre-crisis period, but peaked at e1.2 billion as a response to the last financial and economic crisis in 2009. Perhaps even more strikingly, this state aid was combined with an unprecedented amount of public support granted through scrapping schemes of at least €4.0 billion, and loans from the European Investment Bank of €2.8 billion, or an equivalent of €400 million of .aid element.. In conclusion, the existence of multiple public support instruments at different levels may create coordination problems and a lack of transparency, in spite of the Commission’s efforts. The lack of transparency in turn poses a challenge for the quantification of state aid and non-state aid support to any industry or sector. This paper provides a first step towards informing the policy debate on the effects of public support to the car sector, and also stimulates the academic interest in the subject of state aid, and - more generally - public transfers to companies. ispartof: CES - Discussion paper series, DPS12.14 pages:1-80 status: published

The paper studies the effects of the Pfizer and Pharmacia (2003) merger on competition in the Swiss pharmaceutical market and compares the assessment of the Swiss Competition Commission (COMCO) with the post-merger market developments. We find that the merger has had a miniscule impact on the Swiss pharmaceutical market. This has primarily to do with the fact that the product portfolios of both companies have shown no or only slight overlaps. In both cases of potential anticompetitive effects, the companies successfully proposed to divest some of their assets in order to prevent a further strengthening of their dominant position. The remedies included products in the development phase which were not available on the market at the time of the decision. In other markets in which either an overlapping of businesses of both companies existed or in which one of the merging entities held a dominant market position, no significant effects of the merger were noticed. This might have to do with both, existing price regulation in the Swiss drug industry and changes in Pfizer’s product portfolio following the merger. Furthermore, with respect to other potentially interesting market characteristics such as investment behaviour, R&D, sales or employment, available data on global company level does not allow an isolation of the possible effects of the merger.

In 2002, the Swiss Competition Commission (COMCO) introduced a Notice on the Competitive Treatment of Vertical Restraints in Automobile Trade (‘Car Notice’). The objective of the Car Notice has been to strengthen competition in the Swiss car market, in particular by avoiding price-fixing practices and market foreclosure and stimulating intrabrand competition in the market for new car sales and competition in the service market. Based on a survey conducted among Swiss car market players, we find that the Car Notice only had a slight impact on competition in the Swiss car market. Although some changes have been identified, they typically cannot solely be explained by the impact of the Car Notice but rather result from general market developments that have led to stronger competition in Switzerland.

The paper develops a methodology for the evaluation of competition policy. Based on the existing literature and experiences with policy evaluations in other areas of economic activity, the three-step / nine-building-blocks methodology provides guidance for evaluation projects and also assists in the identification of avenues for further academic research.

The paper assesses the impact of the detection of a hard-core cartel in the Swiss market for road surfacing on post-cartel competition. In addition to an investigation of supply-side factors, demand-side factors, and market prices, the paper also derives estimates of the economic effects of the decision. The results indicate that the detection of the cartel may have led to short-term price reductions; however, the persistent collusion-friendly industry structure forecloses larger and durable gains for the customers.

Im Blickfeld dieser Studie stand die wirtschaftliche Bedeutung der Automobilindustrie in Deutschland im langfristigen internationalen Vergleich: Einerseits ihr Beitrag zu Wertschöpfung, Beschäftigung, Investitionen und Außenhandel, zum anderen ihre Bedeutung für den Forschungs- und Innovationsstandort Deutschland. Die Automobilindustrie wurde dabei nicht isoliert betrachtet, sondern in ihrer engen Verflechtung mit anderen Branchen. Dies betrifft sowohl die Arbeitsteilung zwischen Herstellern und Zulieferern als auch intersektorale Lieferbeziehungen (Input-Output-Analyse) und "technologische Verflechtungen" über wechselseitige Innovationsimpulse, Erfindungen und FuE. Deshalb schließt die Untersuchung die durch die Automobilproduktion ausgelösten vorgelagerten (indirekten) Wirkungen auf Wertschöpfung und Beschäftigung sowie die Impulse für Innovationen in Deutschland mit ein. Darüber hinaus wurde der Rolle des inländischen Absatzmarktes und der Bedeutung des Premiumsegments für die deutsche Automobilindustrie nachgegangen. So weit es die Datenlage erlaubte, wurden diese Aspekte in möglichst langfristiger Sicht, beginnend ab 1980, vornehmlich jedoch für die Periode ab Mitte der 90er Jahre untersucht. Die Analyse endet unmittelbar vor der schweren Wirtschafts- und Finanzkrise, die im Jahr 2009 weltweit den Automobilbau besonders kräftig erfasst hat. Insofern zeichnet sie ein sehr positives Bild der Wachstums- und Strukturwirkungen des Automobilbaus in seiner "Hochzeit". Die Auswirkungen der (sektoralen) Überkapazitätskrise und der allgemeinen weltwirtschaftlichen Rezession sind in dieser Studie ebenso nicht analysiert worden wie die Zukunftsaussichten.1 Die Studie liefert vor allem (Teil-)Antworten bzw. Materialien zur Diskussion von Fragen wie: Wo steht der deutsche Automobilbau sowohl im intersektoralen wie auch im internationalen Maßstab? Was kann bei den sich abzeichnenden Trends in der internationalen Arbeitsteilung, des (Produkt-)Strukturwandels und der Innovationsaktivitäten wieder erreicht werden? Kommt die deutsche Automobilwirtschaft besser aus der Krise als ihre Konkurrenten? Was geht ggf. verloren? Welche gesamtwirtschaftliche Konsequenzen könnte dies bedeuten?

This paper aims to study geographical and multi-product linkages of markets (multiple market presence) and firm behaviour interdependence as a result of such linkages existence. In particular, it attempts to answer whether the multimarket linkages lead to more cooperative behaviour among the firms, which results in higher prices and profits, and whether the degree of collusive/cooperative behaviour varies across markets. These issues are investigated within a structural oligopoly model for differentiated products for the European automobile market on the basis of the aggregate product-level data for 1970-1999. The results of the study reveal weak (quantitative) effect of multimarket contact on market conduct/pricing in the European car market as well as provide some evidence on the redistribution of the market power from the more collusive to the more competitive markets due to multimarket contact.

This paper studies the introduction of new products (increase in product variety) in the automobile industry. The focus is on the two sources of market power that may allow the firms to get higher profits (and, thus, recoup investments): new products and brand-name reputation. The effects of new products on the private incentives to innovate are investigated on the basis of the dataset for the German car industry for 2003. The dataset is rather unique in the sense that it contains detailed information on the technical characteristics of cars, prices and sales as well as information on the introduction of new car models (including new variants and versions) into the German car market at a very disaggregate level. It has been found that both a new model and brand-name reputation may allow the innovative firms to get some market power and recoup their investments. Competition is, however, not localized within a market segment and the class of new or old models, i.e., products from different market segments, new and old products compete with each other (coexisting and not eliminating each other) and do not constitute separate market niches. On the other hand, new (old) models are perceived to be closer substitutes than old (new) models. Consumer preferences towards brand and new products vary depending on their age.

Multimarket contact is perceived to be one of those factors, which can facilitate and sustain implicit collusive (cooperative) arrangements. This paper attempts to develop new approaches to study the interdependence of firm behaviour across markets, especially in the context of differentiated products industries. I analyse the principle of conducting a test of the mutual forbearance hypothesis, and its application using particular data. The multimarket contact effects are studied within a structural oligopoly model for differentiated products for the US automobile market on the basis of the aggregate product-level data for 2001-2003. Some support has been found that multimarket contact may influence competition in the automobile market and increase the firms’ strategic interdependence. This effect is, however, difficult to disentangle from the effect of the market concentration in the US automobile market (dominance of the market by the American Big Three) on the firm behaviour, which could also facilitate collusion. In other words, it is difficult to argue whether coordination is due to market concentration, or due to multimarket contact, or both. Concentration is argued to foster the slack, which is transferred through the multimarket contact.

The central focus of my dissertation has been on the investigation of developments towards more competitive and innovative firm behaviour in the global automobile markets. The automobile companies meet each other in many product and geographical markets worldwide. A large proportion of their production is outside of their "home" country. In my work I focus on international most important car markets, namely US, European and German as the most important single European car market and a very innovative one. The increased competition in the automobile markets coexists with a trend towards more interfirm relationships (both equity and contractual, horizontal and vertical), which results in the complicated dynamic structure of the ownership and firm interactions in the automobile industry. The automotive manufacturers put also a lot of emphasis on innovation and new products introduction to preserve and/or increase their market shares (especially in the satiated triad traditional markets of Western Europe, United States and Japan). They try to win consumer loyalty already in the entry car market segments. In addition to the automobile industry focus of my dissertation, this work has been also aimed to be a contribution to the growing literature on the new empirical approaches in the IO, namely the estimation of structural oligopoly models for differentiated products. I study market conduct, the extent of competition and the effects of new products introduction, which actually have not been investigated so much empirically, in general and for the automobile industry in particular. The major focus of the first two papers is on the investigation of the firms' strategic behaviour interdependence across the markets and testing of the mutual forbearance hypothesis for the automobile markets. I use both menu and conjectural variation approaches to determine the equilibrium patterns of the firm behaviour in the automobile markets. Under the menu approach the firm equilibrium behaviour is identified with the help of statistical tests, which also have not been applied extensively in the past for the structural oligopoly models for differentiated products. The reliability of the results of such tests is addressed. Under the conjectural variation approach I construct the market conduct parameters and investigate the factors that may impact those firms' conjectures. In the third paper I focus on the investigation of the effects from the introduction of new car models in the automobile industry. The impact of new products and brand-name reputation on the market shares and the importance of such principle of differentiation as old versus new car models are investigated. Demand side is derived from discrete choice models: depending on the data available, different specifications on the demand side are estimated. The product-level data on quantities, prices and product characteristics are used. Given the absence of individual-level data on consumer car purchases, some consumer heterogeneity is introduced into the models through using age sales data for the German car market and the information on the empirical income distribution in the US and in the European countries (Belgium, France, Germany, Italy and the UK) to derive reasonable substitution patterns. Both cross-sectional and panel data are used in the estimations. The structure of my dissertation is as follows. The first essay of my dissertation investigates the mutual forbearance hypothesis and firm equilibrium interactions in the US automobile market. The second essay focuses on the impact of the degree of geographical and multiproduct market linkages on the firm behaviour in the European car market. The third paper looks at the innovation and competition patterns in the German automobile market.

Im Blickfeld dieser Studie stand die wirtschaftliche Bedeutung der Automobilindustrie in Deutschland im langfristigen internationalen Vergleich: Einerseits ihr Beitrag zu Wertschöpfung, Beschäftigung, Investitionen und Außenhandel, zum anderen ihre Bedeutung für den Forschungs- und Innovationsstandort Deutschland. Die Automobilindustrie wurde dabei nicht isoliert betrachtet, sondern in ihrer engen Verflechtung mit anderen Branchen. Dies betrifft sowohl die Arbeitsteilung zwischen Herstellern und Zulieferern als auch intersektorale Lieferbeziehungen (Input-Output-Analyse) und "technologische Verflechtungen" über wechselseitige Innovationsimpulse, Erfindungen und FuE. Deshalb schließt die Untersuchung die durch die Automobilproduktion ausgelösten vorgelagerten (indirekten) Wirkungen auf Wertschöpfung und Beschäftigung sowie die Impulse für Innovationen in Deutschland mit ein. Darüber hinaus wurde der Rolle des inländischen Absatzmarktes und der Bedeutung des Premiumsegments für die deutsche Automobilindustrie nachgegangen. So weit es die Datenlage erlaubte, wurden diese Aspekte in möglichst langfristiger Sicht, beginnend ab 1980, vornehmlich jedoch für die Periode ab Mitte der 90er Jahre untersucht. Die Analyse endet unmittelbar vor der schweren Wirtschafts- und Finanzkrise, die im Jahr 2009 weltweit den Automobilbau besonders kräftig erfasst hat. Insofern zeichnet sie ein sehr positives Bild der Wachstums- und Strukturwirkungen des Automobilbaus in seiner "Hochzeit". Die Auswirkungen der (sektoralen) Überkapazitätskrise und der allgemeinen weltwirtschaftlichen Rezession sind in dieser Studie ebenso nicht analysiert worden wie die Zukunftsaussichten.1 Die Studie liefert vor allem (Teil-)Antworten bzw. Materialien zur Diskussion von Fragen wie: Wo steht der deutsche Automobilbau sowohl im intersektoralen wie auch im internationalen Maßstab? Was kann bei den sich abzeichnenden Trends in der internationalen Arbeitsteilung, des (Produkt-)Strukturwandels und der Innovationsaktivitäten wieder erreicht werden? Kommt die deutsche Automobilwirtschaft besser aus der Krise als ihre Konkurrenten? Was geht ggf. verloren? Welche gesamtwirtschaftliche Konsequenzen könnte dies bedeuten?