Can the HM-test be brought to an end?

A significant change seen in the new regulatory framework for communications markets regards issues of market delineation. Relevant markets according to the new regulatory framework should be defined in accordance with competition law methodology/principles, most notably the so-called Hypothetical Monopolist Test (HM-test). Our discussion points to the conceptual and practical difficulties associated with evaluating the effects of a 5–10% price increase on the costs and therefore on the profitability of a hypothetical monopolist. Applying our analysis to fixed retail voice telephony markets we show that, in the presence of scale economies, final results crucially depend on assumptions about the cost function, in particular the relation of variable to fixed costs and the resulting (competitive) margin. The latter, in turn, will depend on the time horizon that is deemed to be relevant for market delineation purposes. Overall quantitative techniques applied to carry out the HM-test rigorously on empirical grounds are highly sensible to those assumptions a priori even if one assumes that (empirical) estimates of elasticities can be derived reasonably.*The views expressed are those of the authors and do not represent those of RTR or TKK.     

Tarifpartnerschaft — ein altes,aber gefährdetes Bündnis?

100 years ago, in November 1918, the Stinnes Legien Agreement was drawn up between various employers’ associations and trade unions. It included collective bargaining autonomy and collective agreements, the eight-hour work day and work councils. It soon failed, but served as a model for the legal regulation of collective bargaining relations after the Second World War. In the meantime, however, collective bargaining has declined significantly. Many employers are members of their associations without a collective agreement. At the same time, union memberships are declining. In view of increasingly precarious forms of employment, the government apparently needs to implement stronger regulations on collective bargaining relations again, such as the Minimum Wage Act. Finally, a look back: In 1918, editorial member Alfred Schmidt-Essen commented on the agreement from a current perspective. We document the article.     

European asset swap spreads and the credit crisis

We examine time-varying behaviour and determinants of asset swap (ASW) spreads for 23 iBoxx European corporate bond indexes from January 2006 to January 2009. The results of a Markov switching model suggest that ASW spreads exhibit regime-dependent behaviour. The evidence is particularly strong for Financial and Corporates Subordinated indexes. Stock market volatility determines ASW spread changes in turbulent periods, whereas stock returns tend to affect spread changes in calm periods. While market liquidity affects spreads only in turbulent regimes the level of interest rates is an important determinant of spread changes in both regimes. Finally, we identify stock returns, lagged ASW spread levels, and lagged volatility of ASW spreads as major drivers of the regime shifts. The results are robust in the extended sample (January 2006 to October 2013) that includes a post-crisis period.     

Problems with leakages at large flanges in the BASF new ammonia plant

Leakage from large diameter flanges had occurred several times in a new 1360 t/d ammonia plant. One such incident resulted in a large fire. The causes of this incident are examined.     

The purity of impure public goods

In this paper, we provide a new perspective on the links between the analysis of the voluntary provision of pure and impure public goods. In particular, it is shown that the impure public good model can be transformed into a pure public good one. This innovative method not only leads to new comparative statics results, but also provides new insights on the impure public good model, for example, on causes of the nonneutrality of income transfers with regard to Nash equilibria in the impure public good case.     

Substitution across profit shifting methods and the impact on thin capitalization rules

International Tax and Public Finance - Thin capitalization rules limit firms’ ability to deduct internal interest payments from taxable income, thereby restricting debt shifting activities of...     

Decomposing industry leverage: The special cases of real estate investment trusts and technology & hardware companies

Different industries exhibit significantly different leverage; companies in the real estate investment trust (REIT) and technology/hardware sectors are extreme examples. In the United States, the leverage ratio is twice as high for REITs (50%) as compared to non-real-estate firms (around 25%), and the technology/hardware sector has the lowest ratio (around 17%). We theoretically and empirically analyze their differences. By decomposing the difference into three channels, we find that the industry-specific channel explains around 67% for REITs and 68% for technology/hardware firms; the value-based channel is mostly responsible for the remaining portion. Taking the nonlinear influences of extreme values into account, the relevance of the industry-specific channel is considerably reduced.