Economics, politics and business environment

In this paper we study how the coexistence of access regulations for legacy (copper) and fiber networks shapes the incentives to invest in network infrastructure. To this end, we develop a theoretical model explaining investment incentives by incumbent telecom operators and heterogeneous entrants and test its main predictions using panel data from 27 EU member states over the last decade. Our theoretical model extends the existing literature by, among other things, allowing for heterogeneous entrants in internet access markets, as we consider both other telecom and cable TV operators as entrants. In the empirical part, we use a novel data set including information on physical fiber network investments, legacy network access regulation and recently imposed fiber access regulations. Our main finding is that more stringent access regulations for both the legacy and the fiber networks harm investments by incumbent telecom operators, but, in line with our theoretical model, do not affect cable TV operators.

The European Union has reached its tenth year of a cycle of financial and economic turmoil that started in mid-2007. In this Open Lecture, based on the observation of recent developments including those related to the Italian banking sector and Brexit in 2016, Nicolas Véron will argue that a new policy cycle is likely to start this year. This new cycle will allow for less emphasis on emergency crisis management and more on the build-up of a sustainable framework to bring the European economy back to normal functioning. While stopping short of currently unrealistic visions of fiscal and political union and EU treaty change, this framing implies significant further changes in the areas of banking, capital markets, fiscal accountability, and structural economic policies. About Nicolas Véron Nicolas Véron cofounded Bruegel in 2002-05, joined the Peterson Institute for International Economics in 2009, and is currently employed on equal terms by both organizations. His research is primarily about financial systems and financial services policy, on which he has published widely since 2002. He has been a witness at numerous parliamentary hearings in the US Senate, European Parliament, and in several European member states; a financial policy expert for the European Commission and Court of Auditors; and a consultant to the International Monetary Fund and World Bank. He is also an independent board member of the global derivatives trade repository arm of DTCC, a financial infrastructure company that operates on a non-profit basis. A graduate of France’s Ecole Polytechnique and Ecole des Mines, his earlier experience includes senior positions in the French government and private sector in the 1990s and early 2000s. In September 2012, Bloomberg Markets included Véron in its yearly global “50 Most Influential” list, with reference to his early advocacy of European banking union.

In this ESMT Open Lecture on November 29, George S. Yip will analyze the key advantages China has for innovation, while identifying challenges for foreign companies conducting innovation in this Asian country. The Professor of Marketing and Strategy at Imperial College Business School will highlight leadership and strategy lessons for foreign companies to be learned, basing his talk upon a four-year program of research conducted by the CEIBS Centre on China Innovation. The findings are the subject of the book China’s Next Strategic Advantage: From Imitation to Innovation, published by The MIT Press in 2016.

Operations management scholarship has focused on reference-group adoption positively influencing focal-facility adoption; i.e., positive imitation parameters manifest due to the presence of mimicry and contagion. We instead argue that the incentive to adopt a quality-management system can be inversely related to reference-group diffusion. Our theoretical model formalizes the potential for strategic substitution and negative imitation parameters to be applicable in quality-management adoption. We compile a dataset of 2,895 facility-level observations that allows for three different industry-level reference groups; i.e., domestic industry, domestic exporters and foreign exporters. When undertaking probit estimations that do not account for appropriate fixed effects, we find positive imitation parameters which support the presence of mimicry and contagion. Yet when accounting for fixed effects, the imitation parameters turn negative in line with the presence of strategic substitution. Furthermore, the negative influence of reference-group adoption on focal-facility adoption is robust across the three reference groups.

Is the success story “European Union” coming to an end? With the United Kingdom leaving the European Union and developments in the Middle East, the political and economic union is struggling for internal stability, while having to face major international crises. In this ESMT Open Lecture on November 1, diplomat, lawyer, and former German State Secretary Jürgen Chrobog will analyze this European challenge as well as its perspectives for a stable future. About Jürgen Chrobog Jürgen Chrobog was born in Berlin in 1940. He represented the German Federal Foreign Office abroad for more than 30 years, with stages in Singapore and Brussels among others. Chrobog held the position of spokesman of the Federal Foreign Office for seven years. During this period he accompanied the process of the German reunification. In 1991 he was appointed Head of Political Affairs and was responsible for most operations in the field of public affairs. Chrobog served as German ambassador in Washington D.C. for six years from 1995, before assuming office as German State Secretary in 2001 and officially retiring from the civil service in 2005. During his time as State Secretary he became well-known for his exceptional commitment to freeing hostages in the Middle East. Thereafter, Chrobog was appointed Chairman of the Board of Directors of the BMW Stiftung Herbert Quandt before moving to Berlin. In the German capital, he works as columnist and consultant, with a main focus on topics such as the Arabic world, especially as they relate to terrorism and the developments in the Middle and Far East. Jürgen Chrobog is married to the Egyptian native, Islamic scholar and consultant for intercultural communications Dr. Magda Gohar-Chrobog. www.esmt.org/open-lectures

In 2013 German companies exported goods worth more than 21 billion euros to Turkey and imported around 12 billion euros worth of goods from Turkey. Turkey is the 14th most important export country for German industry at this time, and it is expected that this will increase. German and the Turkish governments and civil organizations work together diligently to promote research co-operations between the two countries. The German Federal Ministry of Education and Research supports efforts to increase German-Turkish academic and technological collaboration, as does the Turkish Industry and Business Association (TÜSIAD). 2014 was the German-Turkish Year of Research, Education and Innovation. Panelists: * Prof. Sahin Albayrak, Head of the Agent Technologies Chair, Technical University Berlin * Helge Tolksdorf, Director – EU-Enlargement, Southeast Europe, Turkey, Federal Ministry for Economic Affairs and Energy * Peter Webers, Head of Division 212: Cooperation with Developing and Advanced Developing Countries, Africa and Near East , Federal Ministry of Education and Research Moderated by Prof. Stefan Wagner, Associate Professor of Strategy and TÜSIAD/TCCI Chair in European Economic Integration, ESMT

Price concentration studies investigate the relationship between market concentration and price levels. They are increasingly used in the mobile telecom industry. This paper provides a detailed account of the limitations of such studies. In addition, it proposes a specific approach in order to account for quality differences across countries, which are likely important when explaining price differences. When applying our approach to European mobile telecom markets from 2003 to 2012, we find that there is no positive relationship between concentration and prices and some indications that the relationship may be negative.

ESMT European School of Management and Technology talked to Sidharth Birla, the Immediate Past President of the Federation of Indian Chambers of Commerce and Industry (FICCI), about the "Make in India" campaign and what Germany can learn from India. Mr. Birla is also Chairman of Xpro India Limited (an established Polymers Processing and manufacturing company) and Digjam Limited (an established Woolen Worsted Fabric manufacturing company). Sidharth Birla has been a Director on various corporate bodies since 1977. Sidharth Birla has a wide-ranging experience in areas of corporate governance; strategic issues; acquisitions and divestments; company law; corporate and financial structuring; operating financial management and industrial / business operations; private equity fund – creation, structuring and documentation, etc.

ESMT Open Seminar in cooperation with DIW Berlin and Hertie School of Governance: Europe in the global economy - How to stimulate private investment Only strong economic growth will help Europe emerge from its crisis. The reforms implemented to date at national and European level have failed to impact the economy positively; this is due to excessive national, corporate, and private debts, weakness of the banking system, the lack of structural reforms, an insufficient institutional framework at European level, as well as a persisting climate of distrust in the stability of economic development. Europe’s biggest economic weaknesses are a lack of private investment. A European investment agenda is vital in order to generate the impetus required to push the European economy towards a sustainable recovery. Panelists: * Erik F. Nielsen, Global Chief Economist, UniCredit * Prof. Jörg Rocholl, PhD, President and EY Chair in Governance and Compliance, ESMT * Prof. Marcel Fratzscher, President and CEO, DIW Berlin, Professor of Macroeconomics and Finance, Humboldt-University Berlin * Prof. Mark Hallerberg, PhD, Professor for Public Management & Political Economy, Hertie School of Governance Moderator: Stefan Wagstyl, Chief Germany Correspondent at Financial Times

With the Eurozone crisis in its fifth year, Germany’s role and the future of the Euro remain highly relevant. In contrast to those who rally against the common European currency, C. Fred Bergsten continues to argue that Germany has overwhelming reasons to make sure the Euro succeeds and that the Eurozone holds together. While it would be unthinkable for Germany to expose itself to charges that it had “destroyed Europe for a third time,” however, Germany has yet to lay out a clear vision for how it proposes to keep the Eurozone intact and respond to the challenges that lay ahead. While Germany has so far demonstrated the willingness to pay whatever price is necessary to preserve the Eurozone, Bergsten asks if it should indefinitely rely on financing its partners, or if it should rebalance its own economy in ways that would help adjust their imbalances? Is Germany prepared to tackle its large current account surplus? Are there feasible policy options consistent with Germany’s affinity for stability, and abhorrence of fine-tuning, that could achieve such outcomes? Will Germany support the further reform of the Eurozone institutions that will complete the economic and monetary union? Is it prepared to take these steps, and, if not, what is the risk of continuing to plod along? Dr. Bergsten hopes such strategies might help overcome the “high-level stagnation” that is the legacy of the Euro crisis and could otherwise remain so for some time.

At this ESMT Open Lecture, Harvard professor Niall Ferguson discussed and debated issues raised in his latest book Civilization: The West and the Rest. About the book: If in the year 1411 you had been able to circumnavigate the globe, you would have been most impressed by the dazzling civilizations of the Orient. The Forbidden City was under construction in Ming Beijing; in the Near East, the Ottomans were closing in on Constantinople. By contrast, England would have struck you as a miserable backwater ravaged by plague, bad sanitation and incessant war. The other quarrelsome kingdoms of Western Europe - Aragon, Castile, France, Portugal and Scotland - would have seemed little better. As for fifteenth-century North America, it was an anarchic wilderness compared with the realms of the Aztecs and Incas. The idea that the West would come to dominate the Rest for most of the next half millennium would have struck you as wildly fanciful. And yet it happened. What was it about the civilization of Western Europe that allowed it to trump the outwardly superior empires of the Orient? The answer, Niall Ferguson argues, was that the West developed six "killer applications" that the Rest lacked: competition, science, democracy, medicine, consumerism and the work ethic. The key question today is whether or not the West has lost its monopoly on these six things. If so, Ferguson warns, we may be living through the end of Western ascendancy. Civilization takes readers on their own extraordinary journey around the world - from the Grand Canal at Nanjing to the Topkapi Palace in Istanbul; from Machu Picchu in the Andes to Shark Island, Namibia; from the proud towers of Prague to the secret churches of Wenzhou. It is the story of sailboats, missiles, land deeds, vaccines, blue jeans and Chinese Bibles. It is the defining narrative of modern world history. About the speaker: Niall Ferguson is Laurence A. Tisch Professor of History at Harvard University and William Ziegler Professor of Business Administration at Harvard Business School. He is also a Senior Research Fellow at Jesus College, Oxford University, and a Senior Fellow at the Hoover Institution, Stanford University. Born in Glasgow in 1964, Niall Ferguson graduated from Magdalen College with First Class Honors in 1985. After two years as a Hanseatic Scholar in Hamburg and Berlin, he took up a research fellowship at Christ’s College, Cambridge, in 1989, subsequently returning to Oxford where he was appointed professor of Political and Financial History in 2000. Two years later he left for the US where he took up the Herzog Chair in Financial History at the Stern Business School, New York University, before moving to Harvard in 2004. Niall Ferguson is a regular contributor to press, television, and radio on both sides of the Atlantic and a prolific commentator on contemporary politics and economics.

Peer-to-Peer networks, such as the collaboration of thousands of free producers, have recently emerged as one of the most innovative forces in the traditional business world and in the political world. These free producers, or peer producers as they are also called, work together, unpaid, outside of normal work and business structures to create new designs, learning content, reports, encyclopedias, evaluate patents, and much more. This new type of social production or self-determination, driven by crowd intelligence, is capturing the motivation and untapped skills of vast numbers of participants. These "organizations", which are governed by principles of autonomy and self- regulation, have sometimes been able to surpass their business competitors in developing software and writing news and the like. Using these new organizational designs, political P2P-entities have also entered the political arena by mobilizing civil society and contributing to issue-solving processes. Recent examples of this include the Global Occupy Movement and the Pirate Party in Germany. The success of these new organizational forms has attracted the attention of classic structured companies as well as political entrepreneurs who are all trying to take advantage of this new collaboration by establishing platforms to integrate P2P-power into traditional structures and management. This relationship is not easy nor is it self-enforcing. It requires a new understanding of management and leadership, innovation, production, marketing and communications. This raises a number of questions, such as, who is going to change whom? How should businesses engage with and utilize these organizations? What are the risks in moving from such structured hierarchies to platforms? What are the potential rewards for businesses that successfully collaborate? And finally, how will our career paths be affected and changed?

The ESMT Annual Forum 2013 was dedicated to "The Future of Jobs." During this intensive, one-day conference, top business leaders, policymakers, and academics addressed the challenges facing Europe, our business organizations, and the individual regarding future employment. Rounding out the day was the awarding of the ESMT Responsible Leadership Award, which this year honored Mario Draghi, president the European Central Bank Mario Draghi. A speech in his honor was held by Professor Mario Monti, 54th Prime Minister and Senator for Life of the Republic of Italy. The Annual Forum is ESMT's premier event and a platform for dialogue, bringing together guests and international, high-caliber business leaders, academics, and policymakers every year. Thanks to all participants who made the ESMT Annual Forum 2013 such a great event.

At this ESMT Open Lecture, Columbia Business School professor Bruce Kogut took a closer look at what inequality really is. Within the frame of the financial and debt crises of the recent past, he discussed inequality in general and the facts and ethics of executive pay. He approached some of the most puzzling questions. Do executives get paid through a 'market for talent' just like football stars get paid? Why did executive pay in the US, and in many countries including Germany, increase so rapidly in the past two decades? If the argument is that executives are compensated for the risk they bear, did they take on too much risk prior to the financial crisis? Do the ones least able and responsible have to bear the greatest burden? Is this fair? What should be done and what is being done? Should we tax salaries higher? Put limits on them? Improve governance? Let the market decide?

At the ESMT Open Lecture “Why Nations Fail” with James A. Robinson on March 11, 2013, the Harvard professor and co-author of the book of the same name presented the importance economic and political inclusiveness for the success of a nation. More than 300 guests attended the lecture, moderated by Quentin Peel, Financial Times chief correspondent in Germany. Those attending had the chance to ask questions at the lecture and to chat with Prof. Robinson at a reception that rounded up the event.

In this paper, we discuss the actual relevance of efficiency considerations in the EC practice of Article 102 TFEU cases. We first review final Commission Decisions published since 2009 as well as investigations opened during that period to identify enforcement priorities and the actual relevance of efficiency considerations and other objective justifications in the EU Commission’s practice. Thereafter, we contrast this practice with the business view on the actual relevance of pro- and anticompetitive motives, with a focus on low price strategies.

The Regional Aid Guidelines foresee specific screens for an in-depth assessment of Large Investment Projects (LIPs): an in-depth assessment is initiated if the market share of the aid beneficiary is above 25% or the investment results in a capacity expansion above 5% in a declining market. It is currently being discussed within the broader State Aid Modernization package and also due to a recent court ruling on the case Propapier whether these market screens should stay as they are. Based on a dataset of all LIP cases notified under the 2006 Regional Aid Guidelines, we evaluate those market screens and find that the screens do have power to identify problematic cases – cases with a below average expected aid effectiveness and aid measures targeting specific industries. We also find, however, that the market screens are affected by a severe implementation problem and, hence, do not help to shorten phase I investigations. From a conceptual perspective, they are also not capable of identifying some of the potentially most problematic regional State aid cases. Policy options are discussed.

Litigation and post-grant validity challenges at patent offices provide an important mechanism for correcting erroneous patent grants. However, such challenges will only be initiated if the (expected) private gains from challenging a granted patent right exceed the respective costs. Two important aspects may influence the likelihood of challenges. First, there is a public goods problem: firms may refrain from challenges if they anticipate that others will also benefit from the revocation of a weak patent. Second, as more firms are caught up in patent thickets, challenges to weak patents will become too costly as they invite counter-challenges. We use data on opposition proceedings initiated against patents granted at the European Patent Office (EPO) to study the importance of these mechanisms. This paper identifies a significant increase in the incidence of opposition in technical fields characterized by high concentration of patent ownership. Additionally, in fields with a large number of mutually blocking patents, the incidence of opposition is sharply reduced, particularly amongst those firms that are caught up in and driving the growth of patent thickets. Thus, while post-grant reviews may help to resolve problems in some areas, they are less suited to deal with patent thickets and contexts with dispersed patent ownership. We discuss the implications of these results for efforts to deal with patent thickets and weak patents.

We study how two distinct types of pre-entry experience – core technological experience and market-based complementary experience – affect post-entry performance in a new industry. We focus on the fit between capabilities generated through pre-entry experience and the preferences of heterogeneous consumer segments. Specifically, we suggest that firms with pre-entry experience in the focal technology will attract more valuable consumers, but as these consumers typically make adoption decisions early the firm must enter early to benefit. Conversely, firms with pre-entry experience in the focal market will attract a larger share of less valuable consumers regardless of entry timing. Our empirical analysis of the global 2G mobile telecommunications industry supports our theory and provides important insights for research on experience and entry dynamics in high-technology industries.

At the end of 2001, the Indian Supreme Court issued a directive ordering states to institute school lunches – known locally as "midday meals" – in government primary schools. This paper provides a large-scale assessment of the enrollment effects of India's midday meal scheme, which offers warm lunches, free of cost, to 120 million primary school children across India and is the largest school feeding program in the world. To isolate the causal effect of the policy, we make use of staggered implementation across Indian states in government but not private schools. Using a panel data set of almost 500,000 schools observed annually from 2002 to 2004, we find that midday meals result in substantial increases in primary school enrollment, driven by early primary school responses to the program. Our results are robust to a wide range of specification tests.

Paul Heidhues joined ESMT European School of Management and Technology in September 2010 as a full professor, the first holder of the Lufthansa Chair in Competition and Regulation, and the director of PhD studies. Before joining ESMT, Paul was an associate professor for Economic Theory at Bonn Universität from 2005 to 2010 and a research fellow at the Social Science Research Center Berlin (WZB) from 1999 to 2005. He received his Habilitation from the Humboldt Universität zu Berlin in 2005 and his PhD in Economics from Rice University, Houston, Texas in 2000. Paul worked on numerous topics in Industrial Organization and Competition Policy such as input-market bargaining power, merger control, and collusion. More recently, much of his work focuses on the functioning of markets when consumers are partly driven by psychological factors – such as social preferences, loss aversion, time-inconsistency, or naivete – that the classic consumer model abstracts from. Among other things, he has written on how firms optimally price products and design credit contracts in response to consumers’ psychological tendencies, and he has investigated the implications thereof for consumer-protection regulation.

We investigate dynamic coordination among members of a problem-solving team who receive private signals about which of their actions are required for a (static) coordinated solution and who have repeated opportunities to explore different action combinations. In this environment ordinal equilibria, in which agents condition only on how their signals rank their actions and not on signal strength, lead to simple patterns of behavior that have a natural interpretation as routines. These routines partially solve the team's coordination problem by synchronizing the team's search efforts and prove to be resilient to changes in the environment by being ex post equilibria, to agents having only a coarse understanding of other agents' strategies by being fully cursed, and to natural forms of agents' overconfidence. The price of this resilience is that optimal routines are frequently suboptimal equilibria.

This paper analyzes the strategic use of bilateral supply contracts in sequential negotiations between one manufacturer and two differentiated retailers. Allowing for general contracts and retail bargaining power, I show that the first contracting parties have incentives to manipulate their contract to shift rent from the second contracting retailer and these incentives distort the industry profit away from the fully integrated monopoly outcome. To avoid such distortion, the first contracting parties may prefer to sign a contract which has no commitment power and can be renegotiated from scratch should the manufacturer fail in its subsequent negotiation with the second retailer. Renegotiation from scratch induces the first contracting parties to implement the monopoly prices and might enable them to capture the maximized industry profit. A slotting fee, an up-front fee paid by the manufacturer to the first retailer, and a menu of tariff-quantity pairs are sufficient contracts to implement the monopoly outcome. These results do not depend on the type of retail competition, the level of differentiation between the retailers, the order of sequential negotiations, the level of asymmetry between the retailers in terms of their bargaining power vis-à-vis the manufacturer or their profitability in exclusive dealing.

This paper analyzes the welfare implications of buyer mergers, which are mergers between downstream firms from different markets. We focus on the interaction between the merger's effects on downstream efficiency and on buyer power in a setup where one manufacturer with a non-linear cost function sells to two locally competitive retail markets. We show that size discounts for the merged entity has no impact on consumer prices or on smaller retailers, unless the merger affects the downstream efficiency of the merging parties. When the upstream cost function is convex, we find that there are "waterbed effects," that is, each small retailer pays a higher average tariff if a buyer merger improves downstream efficiency. We obtain the opposite results, "anti-waterbed effects," if the merger is inefficient. When the cost function is concave, there are only anti-waterbed effects. In each retail market, the merger decreases the final price if and only if it improves the efficiency of the merging parties, regardless of its impact on the average tariff of small retailers.

We examine a multinational firm which has a decreasing marginal cost, and the optimal sales tax policies of the regions where that firm operates. We show that the regions set higher sales taxes than those given by a cooperative equilibrium. Each region fails to fully internalize the effects of its tax level on another region's welfare and the incentives for that region's authority. Exponential cost functions which exhibit economies of scale (for example Cobb-Douglas) and linear demand functions satisfy our assumptions. Our results suggest the need to coordinate sales tax levels between countries and between smaller entities, like states in the United States. Smaller regions benefit more from such coordination. Lowering sales taxes in each region increases welfare for all regions, profits for firms, and consumer welfare.

Der steigende Bandbreitenbedarf aufgrund datenintensiver Anwendungen, die Konvergenz verschiedenster digitaler Kommunikationstechnologien sowie die zunehmende kommerzielle Bedeutung des Internet werfen eine der wichtigsten Fragen der kommenden Jahre auf: ob und wie sich das Wirtschaftsmodell des Internet weiterentwickeln muss und welche Rolle der Regulierung in diesem Zusammenhang zukommen sollte. Die Vor- und Nachteile einer Netzneutralitätsregulierung im US-amerikanischen Kontext werden gegenwärtig in den USA - unter Teilnahme führender Wissenschaftler - intensiv debattiert. In Europa gab es zu dem in diesem Zusammenhang eingeleiteten Konsultationsverfahren der Europäischen Kommission in der zweiten Hälfte von 2010 über 300 Stellungnahmen, was das lebhafte Interesse von politischen Entscheidungsträgern und Regulatoren, Wirtschaftsvertretern und der allgemeinen Öffentlichkeit an diesem Thema unter Beweis stellt. Was jedoch fehlt, ist eine eingehende Analyse der Auswirkungen einer Netzneutralitätsregulierung auf potenzielle Internet-Geschäftsmodelle, bei der die verschiedenen Marktbedingungen in Europa, und darunter insbesondere die europäische Zugangsregulierung, berücksichtigt werden.

"The increasing demand for bandwidth due to data-intense applications, the convergence of various digital communication technologies as well as the increasing commercial importance of the Internet has given rise to one of the most important questions in the coming years: whether and how the Internet economic model needs to evolve and what role regulation should play in this process. An extensive debate in the US - including contributions by distinguished scholars - has been looking at the pros and cons of net neutrality regulation in the US context. Also in Europe, the European Commission's consultation process in the second half of 2010, which resulted in over 300 responses, shows the vivid interest of policy makers and regulators, industry, and the general public on that matter. However, what is missing is a thorough analysis of the implications of net neutrality regulation on some possible Internet business models adapted to the different market conditions in Europe, foremost European access regulation. In this context, ESMT Competition Analysis analyzes the interaction between different net neutrality regulations and Internet business models. Net neutrality regulation, if and when formally implemented in some shape or form, has the potential to reallocate resources among industry participants, affect optimal pricing strategies, and ultimately impact investment and innovation incentives. Through these effects, the regulatory framework is going to affect which business models will be at all feasible, which are going to thrive, and which will become obsolete. The report derives and analyzes some likely future business models with a view to sustainability in terms of the ability to accommodate increasing traffic volumes and social welfare implications. Based on these assessments, the regulatory implications are discussed for each business model."

"The increasing demand for bandwidth due to data-intense applications, the convergence of various digital communication technologies as well as the increasing commercial importance of the Internet has given rise to one of the most important questions in the coming years: whether and how the Internet economic model needs to evolve and what role regulation should play in this process. Net neutrality regulation, if and when formally implemented in some shape or form, has the potential to reallocate resources among industry participants, affect optimal pricing strategies and ultimately impact investment and innovation incentives. Through these effects, the regulatory framework is going to affect which business models will be at all feasible, which are going to thrive, and which will become obsolete. The report derives and analyzes some likely future business models with a view to sustainability in terms of ability to accommodate increasing traffic volumes and social welfare implications. Based on these assessments the regulatory implications are discussed for each business model. The stylized business models each focus on a different aspect: the ""Congestion-Based Model"" stresses the possibility to tackle congestion problems through congestion-based pricing. The ""Best Effort Plus"" preserves the traditional best effort network but gives ISPs more leeway with innovative services. The ""Quality Classes - Content Pays"" stresses the observed need of different applications for various degrees of quality of service. The ""Quality Classes - User Pays"" model, however, puts the focus on consumer choice for higher quality levels."

The interplay between theory and practice at ESMT especially fascinates Michal Grajek. Find out how this is to be understood and what his research interests are.

We study the properties of a profit-maximizing monopolist's optimal price distribution when selling to a loss-averse consumer, where (following K?szegi and Rabin (2006)) we assume that the consumer's reference point is her recent rational expectations about the purchase. If it is close to costless for the consumer to observe the realized price of the product, then - in a pattern consistent with several recently documented facts regarding supermarket pricing - the monopolist chooses low and variable "sale" prices with some probability and a high and sticky "regular" price with the complementary probability. Realizing that she will buy at the sale prices and hence that she will purchase with positive probability, the consumer chooses to avoid the painful uncertainty in whether she will get the product by buying also at the regular price. If it is more costly for the consumer to observe the realized price, then - in a pattern consistent with the pricing behavior of some other retailers (e.g. movie theaters) - the monopolist chooses a sticky price and holds no sales. In this case, a sale is less tempting and hence less effective in generating an expectation to purchase with positive probability. We also show that ex-ante competition for loyal consumers leads to sticky pricing while ex-post competition leads to marginal-cost pricing, and discuss several other extensions of the model.

We study a two-player dynamic investment model with information externalities and provide necessary and sufficient conditions for a unique switching equilibrium. Within this setup, we ask whether policymakers should interfere when better informed agents make individual investment decisions. We find that when the public information is sufficiently high and a social planer therefore expects an investment boom, investments should be taxed. Conversely, any positive investment tax is suboptimally high if the public information is sufficiently unfavorable. We also show that an investment tax may increase overall investment activity.

Using a large longitudinal, nationally representative workplace-level dataset, we explore the productivity gains associated with computer use and organizational redesign. The empirical strategy involves the estimation of a production function, augmented to account for technology use and organizational design, correcting for unobserved heterogeneity. We find large returns associated with computer use. We also find that computer use and organizational redesign may be complements or substitutes in production, and that the productivity gains associated with organizational redesign are industry-specific.

International standards have the potential to both promote and hinder international trade. Yet empirical scholarship on the standards-trade relationship has been held up due to some methodological challenges: measurement problems, varied effects, and endogeneity concerns. We are able to surmount these challenges while considering the impact of one particular standard on the country-pair trade flows between 91 nations over the 1995-2005 period. To deal with these challenges, we measure the degree of standardization via the penetration of ISO 9000 in individual nations, allow ISO diffusion to manifest via multiple (quality-signaling, information/compliance-cost, and common-language) effects, and use instrumental variable and panel data techniques to overcome endogeneity concerns. We find strong evidence in support of ISO 9000 involving a common-language effect that enhances country-pair trade; yet, the evidence is more mixed with regard to the quality-signaling and information/compliance-cost effects. While we find ISO-rich nations (most notably European) to clearly benefit from the worldwide diffusion of standardization, ISO 9000 represents a de facto trade barrier for nations (e.g., the US and Mexico) lagging behind in terms of adoption.

Payment card networks, such as Visa, require merchants' banks to pay substantial "interchange" fees to cardholders' banks, on a per transaction basis. This paper shows that a network's profit-maximizing fee induces an inefficient price structure, over-subsidizing card usage and over-taxing merchants. In contrast to the literature we show that this distortion is systematic and arises from the fact that consumers make two distinct decisions (membership and usage) whereas merchants make only one (membership). These findings are robust to competition for cardholders and/or for merchants, network competition, and strategic card acceptance to attract consumers.

We provide evidence of an inherent trade-off between access regulation and investment incentives in telecommunications by using a comprehensive data set covering 70+ fixed-line operators in 20 countries over 10 years. Our econometric model accommodates: different investment incentives for incumbents and entrants; a strategic interaction of entrants' and incumbents' investments; and endogenous regulation. We find access regulation to negatively affect both total industry and individual carrier investment. Thus promoting market entry by means of regulated access undermines incentives to invest in facilities-based competition. Moreover, we find evidence of a regulatory commitment problem: higher incumbents' investments encourage provision of regulated access.

Critical Mass is a common feature of technology diffusion processes. We develop a structural model of demand with network effects to provide a rigorous definition of critical mass as a function of installed base, price and network effects. Using data from the digital cellular telephony market, we identify critical mass phenomena and find that differences in the critical mass point in different countries rest mainly on different countries' socioeconomic characteristics and the extent of competition in a country. This application illustrates that our demand model can be operationalized easily and can generate theoretically grounded empirical insights about critical mass phenomena.

This paper argues that empirical economic analysis in court proceedings is subject to important economic and legal restrictions, cumulating in a fundamental trade-off between accuracy and practicality. We draw lessons from two influential German court cases - the paper wholesaler cartel decision of 2007 and the cement cartel decision of 2009. We characterise the trade-offs arguing that they need to be well understood, made transparent, and that decisions on how to proceed in light of these trade-offs have to be taken upfront by the court. In this respect, we believe that the three-step procedure (design, application, and robustness checks) followed by the German court in the cement case is well suited to meet the appropriate legal standard and requirements, both with respect to accuracy and practicality.

The telecommunication industry is currently in the midst of a disruptive technological development. Next generation (fibre) networks (NGN) increase transmission data speeds from the current 16Mbit/s to more than 100Mbit/s. This enables new services such as HDTV, interactive gaming or video on demand. While the technology exists today, the timing and extent of actual investments depend on the access regulation for non-investors. This paper explores how different regulatory access regimes affect investments and social welfare. We find that the existing access regulation, where the investor bears the investment risk alone, induces too little investments to the detriment of consumers. In contrast, access regimes that distribute the investment risk among more or all telecoms firms stimulate investments and increase consumer surplus. The paper also explores how different forms of risk-sharing, in terms of participating firms and cost allocations, affect social welfare. The (simulation) results presented in this paper build on a game theoretical model.

This study analyses the geographic integration of electricity wholesale markets with a focus on Germany and its neighbouring countries. We employ various indicators based on publically available data and find that electricity markets have become more integrated since the sector inquiry undertaken by the European Commission in the years preceeding 2006. However, European markets are not yet fully integrated. The results also suggest that stronger (and costly) integration towards certain countries may have only little or adverse effects on electricity wholesale prices in Germany. Finally, in the past, German electricity wholesale prices have appeared too low so as to trigger investments into new generation capacity. To that end prices do not appear inflated.

The 2009 Annual Forum Navigating in Turbulent Times brought together an international mix of policy makers, economists, academics, and students. The forum is an open platform for exchange, and gave insights into the impact of the financial crisis on the real economy.

Part 2 with ESMT professor Jörg Rocholl, and Elizabeth Corley, CEO Allianz Global Investors Europe. In an open discussion, Jörg Rocholl, and Elizabeth Corley discuss what types of regulation measures are productive and protective. Part 2 of two delves into; 1) Regulating Europe, 2) Hedge fund regulation, 3) Transparency in the hedge fund industry.

This paper analyses how different types of access regulation to next generation networks affect investments and consumer welfare. The model consists of an investment stage with uncertain returns and subsequent quantity competition. The access price is a function of investment costs and the regulatory regime. A regime with fully distributed costs or a regulatory holiday induces highest investments, followed by risk-sharing and long-run-incremental cost regulation. Risk-sharing creates most consumer welfare, followed by regimes with fully distributed costs, long-run-incremental costs and regulatory holiday, respectively. Risk-sharing benefits consumers as it combines relatively high ex-ante investment incentives with strong ex-post competitive intensity.

This paper asks whether adversity spurs the introduction of process innovations and increases the use of managerial incentives by firms. Using a large panel data set of workplaces in Canada, our identification strategy relies on exogenous variation in adversity arising from increased border security along the 49th parallel following 9/11. Our longitudinal difference-in-differences estimates indicate that firms responded to adversity by introducing new or improved processes, but did not change their use of managerial incentives. These results suggest that the threat of bankruptcy may provide impetus for improving efficiency.

In 2010 the legal barriers for international, intramodal competition in long-haul passenger transport in the railway sector will be abolished. This report analyzes the extent to which effective competition will arise in long-haul passenger transport after liberalization-from 2010 onward-and how co-operative agreements between European rail operators may impact the liberalization process. The study also provides an overview of the existing literature related to entry and intramodal competition in the rail sector, as well as intermodal competition between aviation and rail. In addition, it provides a review of the legal and regulatory environment of the sector at a European level and evaluates current organizations operating in it. The following are the main conclusions:- We find robust evidence for effective competition between low cost airlines (LCAs) and rail operators. A rail operator loses at least 7% of its passengers and 8% of its passenger kilometers due to entry by LCAs. We also find evidence of negative price effects of strategic LCA entry in both first class and second class. This demonstrates that LCAs are a significant competitive constraint for rail operators.- Based on a revenue & cost model ('R&C model'), only a minority of long distance origins and destinations (O&Ds) are profitable with respect to both operating profitability and total profitability from a pre-entry perspective - that is before entry by competing rail operators. This result does not change drastically even under optimistic but reasonable assumptions regarding future changes in demand, costs, and degree of intermodal competition.- An analysis of various entry strategies identifies the most profitable strategy as entry by an independent entrant with inferior technology. However, such a strategy is specifically vulnerable to legal and strategic limitations on exploitation of network effects (e.g. by imposing national levies or incompatibilities in ticketing or train schedules).- Overall, we find very limited evidence for intramodal competition arising on international O&Ds for long distance passenger travel after 2010, while past experience from airline alliances - although in a different competitive setting - promises significant efficiency gains as a result of international alliances.

As markets internationalize while consolidating, companies have to ask themselves if they can become leaders in these broader international markets. The consolidation index, developed by Burger, is a framework for developing and validating strategies in this regard. The European airline industry has a comparably low level of consolidation with the top 5 airlines having a combined market share of 31 percent in Europe. This business brief applies the consolidation index to the European airline industry and shows which airlines are in a good position to drive the future consolidation process in this industry.

"Translating IPCC climate models into CO2 emissions per head results in 2030 emission targets of 5 percent of today's emission levels for the US and 10 percent for Europe. In an energy environment where externalities like CO2 are priced and where fossil fuels are becoming scarce and more expensive, only a major transformation of the 20th century energy and mobility infrastructure will be able to cope with these climate and fossil fuel scarcity challenges. With increasing energy prices, energy efficiency and decentralized energy generation will be key ingredients for this energy paradigm shift. Focusing on this paradigm shift, the business brief as a thought experiment intends to: -Identify implications for the value chain, namely the creation of new value-chain segments; -Indicate potential shifts in market size and margin of the respective value-chain segments; -Derive implications for players involved, namely the emergence of a new competitive landscape. The business brief addresses all energy players involved, especially incumbents who face the challenge to balance the tasks of securing and optimizing traditional business while at the same time taking part in new disruptive innovations."

This study analyses the relationship between entry regulation and infrastructure investment in the telecommunication sector. The empirical analysis we conduct is based on a comprehensive data set covering 180 fixed-line and mobile operators in 25 European countries over 10 years and employs a newly created indicator measuring regulatory intensity in the European countries. We carefully treat the endogeneity problem of regulation by applying instrumental variables and find that tough entry regulation (e.g. unbundling) discourages infrastructure investment by entrants but has no effect on incumbents in fixed-line telecommunications. We do not find significant impact of entry regulation on investment in mobile telephony.

Cross-country or cross-industry studies of technology diffusion typically estimate how independent factors affect diffusion speed or timing, often based on a two-stage approach. In many applications, however, countries (industries) differ most in the saturation level of diffusion. In a novel, single-stage econometric approach to a standard diffusion model, we therefore estimate how the saturation level co-varies with independent factors. In our application to diffusion of an important retail information technology, we focus on the competitive effect of hypermarkets (superstores). We also find standard scale, income and labor substitution effects.

I develop a structural demand model for mobile telephone service, which facilitates the identification of network effects and compatibility between networks. Network effects are measured by the dependence of consumer willingness to pay on the installed base of subscribers. Compatibility is measured by the relative extent of cross- and own-network effects. I then estimate the model using quarterly panel data from the Polish mobile telephone industry from 1996-2001 and find strong network effects and - despite full interconnection of the mobile telephone networks - low compatibility. I also show that ignoring network effects leads to an overestimation of elasticity of demand.

We study the dynamics of usage intensity of second-generation cellular telephony over the diffusion curve. Specifically, we address two questions: First, can we draw conclusions about the underlying drivers of technology diffusion by studying usage intensity? Second, what is the effect of high penetration of previous generations and competing networks on network usage intensity? Using an operator-level panel covering 41 countries with quarterly data over 6 years, we find that heterogeneity among adopters dominates network effects and that different technological generations are complements in terms of usage, but substitutes in terms of subscription.

This paper investigates the role of exploitative abuse under Article 82. Unlike exclusionary practices, there is relatively little economic commentary on the proper role of exploitative abuses in competition policy, even though the legal perspective in Europe has consistently emphasized the importance of enforcing antitrust action in the arena of exploitative practices. In this paper I will address the following two questions: what are the effects of antitrust action against exploitative conduct? and when to take antitrust action against exploitative abuses?