1997 – Gerzensee

Annual Meeting of the Committee for Industrial Economics, 10–11 March, 1997

The Annual Meeting of the Committee for Industrial Economics took place in the Study Center of the National Bank in Gerzensee, Switzerland on 10–11 March, 1997. The local organisation was undertaken by Prof. Dr. Niklaus Blattner.

The first part focused on the theoretical and empirical analysis of structural chanfe and innovation. The topic by Ulrich Witt (Jena) was: "'Lock-In' vs. 'Critical Masses' - Industrial Change under Network Externalities". Witt particularly rejected the theoretical inevitability according to which respectively one single version of innovation dominates the market in case of significant network externalities. If the so-called "lock-in"-phenomenon applied consistently, it would cause a noticeable procrastination of the innovation process. This seems to contradict the reality. Witt succeeds in defusing the paradox by modifying the model appropriately. An essential point is the introduction of a "critical mass", which suggests the users to adopt new variants - despite the network advantages of technologies that have already been applied - as soon as it is reached by the innovators.

Hariolf Grupp (Karlsruhe) presented the paper "Embodied and Disembodied Technical Change: A Multi-Factorial Analysis of German Firms". The empirical stusdy is based on cross-sectional data of 240 German firms. Basic data are the expenses for research and development as well as patent applications. The findings include: The tendency for patent applications is prominently marked only by the size of a firm. The examination of the relations between eight innovation indicators brings three factors, whereas especially the "internal innovation" (intangible technical progress) and the "external innovation" (embodied technical progress) stand out. The innovation activity can neither be explained by the firms' size nor by the industry they belong to.

The third paper in this part of the meeting is written by Doris Neuberger (Rostock). She discussed "Direct Banking - A Demand Pull and Technology Push Innovation". The technological boost especially concerns the supply side and has its origin in the telecommunication and the information technology (Telematics). The strong demand is based on a change in the customers' behaviour which his also caused by telematics. A model of the monopolistic competition demonstrates that the innovation of "Direct Banking" rather gives reson to expect a higher number of providers and lower prices for services than "brick and mortar banking". Punctual empirical evidence is consulted as support.

The transition with the topic competition and banking sector to the second part of the meeting was fluent. Lars-Hendrik Röller (Berlin) presented a paper that he wrote in collaboration with Damien Neven (Lausanne): "An Aggregate Structural Model of Competition in the European Banking Industry". It focuses on the market for mortgage to private households and the remaining commercial loans. On the theoretical level, a structural model with data of seven countries from the years 1981 to 1989 is estimated. It turns out that the deregulation probably encouraged the decrease in collusion. Especially in the area of mortgage lending, prohibited agreement or concerted practice can not be excluded. The fact that such behaviour occurs is plausible because the price elasticity of demand is relatively high. Furthermore, evidence for a cross-subsidisation can be found between the two observed kinds of loans.

In the second presentation of this part, Alexander Karmann (Dresden) disputes "Banking Risks and Interest Rate Behaviour: A Stochastic Order Approach". With this theoretical paper, the author contributes to the topic risks of changes in interest in the banking system. To do this, the behaviour of the interest rates is being captured with the aid of the concept of the stochastic order of distributions. Afterwards, he distinguishes risks of liquidity and price. According to definition, the former are inexistent as long as the finance market is perfect. However, when externalities have a role, rising liquidity cause a loss in return, whereas different types of banks are affected on a different degree. Price risks respectively risks of insolvency can not be excluded.

The third part of the meeting concentrated on coherence between industrial structure and labour markets. Konrad Stahl (Mannheim) presented the paper "Labor Market Pooling and Firm Heterogeneity" which he wrote in collaboration with Uwe Walz (Bochum). The explanation of the concentration of employers and employees (pooling) is debated. In literature, the driving forces are the economies of scale as well as the balancing of risks followed by a portfolioof employment opportunities. Looking at the microstructure and taking the heterogeneity of the input markets and oputput markets of companies into account, however, the picture becomes blurred. The concentration within an area still is possible, but solely as a special case.

Klaus F. Zimmermann (Munich) examined the topic "German Job Mobility and Wages". The messages of this empirical paper (panel data) can be summarised like a bouquet: The Germans are more flexible than it is often claimed. The internal labour market is more important than the external one. Trying to explain the wages, the job is the more relevant starting point than the branch of industry or the individual productivity (human capital). The present employment with a company does not contribute to the declaration of income. The current individual mobility depends on the previous mobility and regional influences.

The last contribution was Joachim Schwalbach's (Berlin) and Ulrike Grasshoff's (Berlin) study "Corporate Restructuring, Downsizing and Managerial Compensation". This study strengthens the suspicion that executives of public corporations are generally not remunerated efficiently. The fact that coherences between the performance of companies and the remuneration of executives in large businesses are less distinct than in small companies is attributed to the variety of tasks which increases together with the size of a company. The more manifold the tasks are, the harder it is to evaluate the achievment of a manager. Therefore, a "downsizing" does not seem absurd, whereas this is not a sufficient criterion, of course. The data stems from 48 German stock companies and refers to the years 1968 – 1994.

As in the last year, a number of contributions is to be admitted into the ifo studies. Therefore, a warm thanks to the colleagues Hans-Jürgen Ramser and Karl-Heinz Oppenländer.

Joachim Schwalbach(Berlin) has been elected the chairman of the committee and Gerhard Clemenz (Wien) has been elected the vice-chairman. The meeting 1998 will take place on 9–10 March in Vienna. Again, the programme is attractive.