Economic surveys and country surveillance

Economic Survey of Germany 2006: Fostering product market competition would have large benefits


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The following OECD assessment and recommendations summarise Chapter 5 of the Economic Survey of Germany 2006 published on 30 May 2006.
An excerpt, "Sustained competition is absent in energy markets", is also available.


Further reforms of product market regulation would boost consumer welfare, productivity and employment

A pro-competitive stance of product market regulation can raise consumer welfare through higher real wages, employment and productivity growth, and strengthens resilience to adverse shocks. While external policies are open, there is considerable scope for making regulation of domestic goods and service markets more competition-friendly. Substantial administrative overhead raises barriers to entrepreneurship, and progress with privatisation has been relatively slow. In some industries sector-specific regulation remains highly restrictive.

General competition law should not be used to protect small enterprises

Competition law is generally effective and the Federal Cartel Office is a strong and independent enforcement agency, although fining procedures appear to be lengthy. In the area of abuse of dominance, however, competition law in some cases protects small and medium-sized enterprises (SMEs) against aggressive competition by larger firms even if such competition enhances consumer welfare. Fining procedures need to be made more efficient. The Cartel Office should strengthen the analysis of economic effects of conduct, and not emphasise the protection of small firms on the grounds of them being small.

Government sector involvement in business sector activities needs to be scaled down further

Government ownership of enterprises remains considerable and is concentrated in the network industries, giving rise to concerns over conflict of interest. State aid to business has also been generous in international comparison. Many government support programmes target SMEs and are linked to firm-size limits, which may generate unintended incentives for firms not to grow. Privatisation of public sector enterprises should be accelerated. State aid to enterprises should be phased out, except where there is evidence that the aid offsets efficiency losses resulting from market failure.

Administrative burdens impede firm entry

New firm creation as well as potential foreign market entrants and innovative firms are still particularly subject to the adverse consequences of high administrative burdens, although efforts to reduce administrative overheads have already been made and the federal government has announced initiatives to this end. Business conduct regulation is input-oriented, favouring insiders, and dispersed responsibilities across different regulatory units add to administrative burdens. Entry barriers remain high in public procurement. Regulatory impact analysis is not yet firmly established, although some states have started to reconsider the appropriateness of existing regulations and have introduced a screening process for new regulations. Attempts should be made to replace regulation defining inputs by regulation that sets output targets. Related auditing competencies should be bundled within one agency only. Expert groups to asses the regulatory burden for enterprises and households of existing regulation should be established at all layers of government. Regulatory impact analysis should be incorporated in the legislative process at the federal and state level.

Notwithstanding significant reform regulatory challenges in network industries remain

Germany moved relatively early in opening network industries to competition, notably in the energy sector and the railways industry. However, the regulatory framework conditions introduced were not conducive to sustained competition, notably in the energy sector, where regulation largely relied on voluntary agreements between market participants. The introduction of a single sector regulator (FNA) for telecom, energy and railway industries provides an opportunity to accelerate the pace at which genuine competition develops. A single network regulator may potentially reduce risks of regulatory capture and the FNA is formally independent from the government. In the energy sector ex-ante regulation as well as legal and operational separation of network from potentially competitive activities have been introduced.

  • In the energy sector, the FNA appears to be overly restricted in assessing the costs of network providers. It should be carefully monitored whether network access prices in the energy sector are determined according to the costs of the most efficient providers Countries which have introduced ownership unbundling of key potentially competitive activities from the network activities reap bigger effects from liberalising energy markets. It should be considered to extend the separation of network from potentially competitive activities to ownership separation between electricity transmissions network operations and electricity generation. Electricity generation companies and wholesale gas suppliers should be prevented from acquiring further stakes in distribution networks.
  • In telecommunications markets, some regulatory decisions favouring competition have been introduced with some delay in comparison to other European countries. In telephony delays in the implementation of decisions by the network regulator should be monitored and further delays prevented. Resale of unbundled local loop connections has become a major means of obtaining access to the local loop for competitors. Current regulation excludes the option of introducing compulsory resale of unbundled local loops to competitors until July 2008. This deadline should be brought forward.
  • Competition in railway services has developed slowly and incentives for implementing more aggressive cost saving measures are weak. Railway network access charges should be more effectively regulated. The federal and state railways regulators should oblige the incumbent operator to rent out rolling stock at non-discriminatory conditions. Competitive tendering of regional rail service contracts should be made compulsory. Further reforms should aim at achieving more effective separation of the network from transport services.

Energy prices(1)
2005, second half

1. All prices exclude all taxes.
2. The price for large users is the average of prices for larger industrial consumers; that for small users is the average of prices for small industrial and medium household consumers. Prices for Germany include municipal charges for rights of way.
3. The price for large users is the average of prices for larger industrial consumers; that for small users is the average of prices for small industrial and medium household consumers.
Source: Eurostat, New Cronos.

Regulation impedes competition in the liberal professions and the crafts

Regulation of (liberal) professions is among the tightest in the OECD. Some professions have rules with respect to exclusive assignment of tasks and the setting of prices for some services. Moreover, associations are often involved in determining the content of regulation, which is likely to strengthen the power of incumbents at the expense of new entrants. Legally-set price schedules should be phased out as soon as possible and should not be replaced by recommended fee schedules. Conduct regulation needs to be reconsidered. In the crafts, most existing businesses remain tied to a qualification requirement or a track record of professional experience, generating considerable entry costs. Qualification-related entry requirements in the crafts sector should be abolished.

Sectoral regulation of professional services(1)
Index 0 to 6, least to most restrictive regulation

1. Accounting, law, engineering and architecture.
Source: OECD (2005), Economic Policy Reforms: Going for Growth.

Restrictions on opening or expanding large retail outlets should be reduced

Large surface retailers have helped lower consumer prices and boost productivity performance in several OECD countries. In Germany permission for new large scale retail centres may be denied if their adverse impact on established retailers in adjacent municipalities exceeds certain thresholds. Consideration should be given to taking more fully into account consumer benefits that arise from easing restrictions concerning the setting-up of large retail outlets.


How to obtain this publication                                                                                      

The Policy Brief (pdf format) can also be downloaded. It contains the OECD assessment and recommendations, but not all of the charts included on the above pages.
Der Policy Brief (pdf-Format) steht zum Herunterladen zur Verfügung. Er enthält die Gesamtbeurteilung und die Empfehlungen der OECD aber nicht alle Abbildungen auf den Seiten oben.

The complete edition of the Economic Survey of Germany 2006 is available from:


Additional information                                                                                                  

For further information please contact the Germany Desk at the OECD Economics Department at The OECD Secretariat's report was prepared by Eckhard Wurzel and Andrés Fuentes under the supervision of Andreas Wörgötter.


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OECD Economic Survey of Germany 2006: Sustained Competition is Absent in Energy Markets


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