The markets which form the competitive environments for companies can differ widely, varying, for instance, in the composition of supply and demand and in the institutional framework that flanks all business activities. In addition, markets are constantly changing – nowadays in particular because of the digitization of all areas of life.
Against this backdrop, the economists of the research unit Structural Change and Competition examine the strategic behavior of companies, the design of markets and the impact of government regulation on competition.
The aim of the research is to provide policy recommendations in order to foster efficient and welfare-enhancing competition and facilitate successful business creation and development.
The researchers particularly focus on the effects of digitization on competition. The increasing interconnectedness of people, machines and processes and the associated automation and intelligent self-organization of production (autonomy) implies many questions and challenges for industry, policy and society.
Sections of the Research Unit
- Industrial organization and competition: The focus of this section is the interaction between companies and markets as well as the interaction among companies. The IW researchers examine the impact of the organization and regulation of markets on businesses and competition. Furthermore, they investigate issues concerning the market design and the regulation of new technologies, for example in the context of Industry 4.0. The Digital Single Market initiative of the EU is also carefully examined.
- Enterprises: The main interest of this research section is the development of companies. Companies are founded, they grow or shrink, and some eventually leave the market. Companies adapt to changing circumstances, but they also affect structural change themselves. A crucial issue treated in this research section is the establishment of an institutional framework that renders Germany an attractive place for business for companies from all over the world.
Findings and positions
- Digital Single Market (DSM): The European Commission’s strategy for the DSM is an important first step towards a convergence of the member states in the digital world. However, the proposed measures are worded in very general terms and the planned implementation until the end of 2016 is doubtful. Still, the DSM is a necessity in order to realize the full potential digitization might entail for companies in Europe, and is a particular prerequisite for enhancing their global competitiveness.
- Data protection legislation: In order to implement the DSM, a uniform data protection legislation within the European Union is urgently necessary. It holds cost advantages for companies, especially SMEs, and benefits consumers. The General Data Protection Regulation (GDPR) that EU Council, Parliament and Commission agreed upon in December 2015 is, despite some flaws and inaccuracies, of paramount importance to foster welfare-enhancing digitization in Europe.
- Sharing Economy: Sharing Economy companies are an increasingly important part of the European company landscape and contribute to employment and prosperity. To ensure fair competition, it is crucial that competition authorities quickly review the existing regulation in the markets that Sharing Economy companies are active in. Currently, these companies often do not adhere to this regulation because they feel the rules do not apply to their business model of matching individual suppliers and consumers.
- Broadband infrastructure: In an economy becoming more digitized every day, a fast and stable broadband infrastructure is crucial. The German government’s target of an average download speed of 50 Megabits per second until 2018 is very ambitious. The biggest challenge is to finance the broadband infrastructure expansion, especially in rural areas. However, if Germany wants to keep pace with digitization, a significant broadband infrastructure expansion should be the first bullet on the bucket list.
- Conditions for start-up companies: Start-up companies are particularly innovative and often build on disruptive ideas that can advance whole industries. Therefore, the facilitation of founding start-ups is vital. In Germany, as well as in some other European countries, the main challenge consists in making venture capital available. This is why the regulatory framework for investments in start-ups needs to be improved rapidly.
- SMEs: The vast majority of European companies are SMEs. They face particular challenges and greater constraints compared to larger companies, for example with respect to funding and availability of personnel. Thus, they need an economic policy tailored to their needs both on the national and on the European level. Ideally, it should reduce bureaucracy, ensure fair competition in liberalized markets, and lower the tax burden of SMEs.