We must protect competition. Policy Brief #2020/03 May 2020.

Ganglmair, Bernhard and Stühmeier, Toben (2020) We must protect competition. Policy Brief #2020/03 May 2020. [Policy Paper]

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Abstract

Germany's economic output slumped by 2.2 per-cent in the first quarter of this year, amounting to the sharpest drop since the financial crisis of 2008/2009. For the year as a whole, the federal government even expects the largest decline in gross domestic product since the post-war pe-riod. In its efforts to counteract the stark economic im-pact of the Corona pandemic, the federal govern-ment is putting in place aid programmes worth billions. Various packages are designed to se-cure the liquidity of companies with a functioning business model before the crisis. But the corpo-rate landscape will inevitably change. Many sec-tors such as tourism and the hospitality industry are massively affected by the lockdown and re-lated measures. Industries that are strongly inte-grated into international supply chains, such as the metal, electrical, and automotive industries, are also struggling with disruptions and losses. Despite the aid packages, there is a considera-ble risk of market upheaval. And on top, the packages themselves can come with negative ef-fects for competition, experts warn. Especially in heavily crisis-ridden sectors, there is a threat of reduced competition. Some companies will dis-appear from the market - ailing companies are good takeover candidates. All in all, an increase in market concentration is feared. And these developments have consequences for the competitiveness of the economy as a whole, as we show in our current study "Price Markups, Innovation, and Productivity: Evidence from Ger-many." We examine how competition between companies in Germany has developed in recent years and show that effective competition is an important driver of productivity and innovation. We summarize the key findings of the study in this policy brief.

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