Pricing Strategies in Grocery Retailing

Project Team: R. Herrmann (in charge), A. Möser, S. A. Weber, R. Sexton

In many industrialised countries, grocery retailing (GR) is subjected to a continuously advancing process of concentration and to an increase of the average plant size. One reason for this is the globalisation of markets and their international interconnection. Large and financially strong foreign companies force their way onto the national markets of the EU, a fact which leads to increased competitive pressure of the established GR companies. This market development is combined with challenges of market competition policy, e.g. with the question concerning the increasing buyer concentration of power in the GR or with the regulation of below-cost prices in the course of typical pricing strategies of the GR.

Within this project there is a cooperation between the project teams of Prof Herrmann, who is in charge of the project, and Prof. Leonhäuser via the participation of Dr. A. Möser. In 2005 the ZEU financed participation in the annual conference of American agrarian economists during which he was able to present the contribution with Dr. A. Möser, "Psycho¬lo¬gi¬cal Prices and Price Rigidity in Grocery Retailing". In the meantime, the contribution has evolved into a publication in the journal "Agribusiness - An International Journal". Aforementioned visit to the conference was also used to plan a publication with R. Sexton, UC Davis, who works in a very similar area with his project team. Currently, said cooperation is not yet sponsored by the ZEU. S. A. Weber was granted a subsidy by ZEU for the presentation of a project contribution to the convention of the European Association of Agricultural Economists in Copenhagen.

The project results show that food prices in Germany are subject to a strong price rigidity. A considerable contribution to said price rigidity is also made by psychological price thresholds and costs for price adjustments; differences exist in the dependence on company strategies. A new conception of the project, based on the scanner data set used in the project, is scheduled for 2006.

Determinants of Foreign Direct Investments in the Food Economy

Project Team: R. Herrmann (in charge), M. Gast

Against the background of a vigorous increase of the interconnection of world economy especially in the 1990s it is examined which determining factors influence the implementation of foreign direct investments and in how far these also have special consequences for the nutritional industry. In the debate concerning the determinants of direct investments there is a traditional differentiation between factors supporting the horizontal investments for market development (typical in the industrial countries) and those which favour the execution of vertical direct investments in the upstream area (typical in developing and transformation countries). Here, variables as the per capita income, the factor price level, expected future business conditions, expenditures for research and development, promotion expenditures, but also political indicators as the lack of corruption or trade barriers, and others play a role.

In 2005, the final report of the DFG research project, which has been sponsored since 2003, was formulated and received a positive evaluation by the Deutsche Forschungsgemeinschaft. The doctoral thesis of Dipl. oec. troph. Michael Gast, which was based on this report, was handed in during the second quarter of 2006 and completed successfully.

In the study, gravitation equations concerning a panel data set for OECD countries were evaluated, which were estimated for bilateral foreign direct investments and exports. The following are some of the central results: direct investments as well as exports are favoured by an increasing size of the market and in the case of a convergence of country sizes. Upward movements on the stock market facilitate outward-directed direct investments from the EU, but not exports. When the evaluation of political risks changes, there are strong trade effects but no significant direct investments abroad. Exchange rate effects strongly influence foreign direct investments and exports, but in different forms. Price increases in the partner country increase foreign direct investments as well as exports. The influence of distance and thus of transportation costs on direct investments and exports was negative; economic integration in OECD countries ensued especially with neighbouring countries.

All together, the DFG project proves that the new trade theory, as well as the knowledge-capital approach of multinational enterprises are very suitable for an explanation of direct investments and trade.

Poland on Its Way to a Federal State? Reform of the Financial Constitution in the Course of Transformation and Poland's Joining of the EU Under Special Consideration of German Experiences

Project Team: A. Bohnet (in charge), L. Ponterlitschek (ZEU), K. Piotrowska-Marczak (University of Lodz), W. Misiag (Gdansk Institute for Market Economics), M. Schratzenstaller (WIFO, Vienna), I. Bischoff (University of Giessen)

Although reforms of the system of public finance are an indispensable component of the transformation of an economic and social system, the larger part of the research of economic sciences has so far devoted itself to the questions of the transformation of central planning to market-oriented coordination processes as well as to the privatisation of state property. This discovery is the starting point of the research project whose aim it is to document the current state of reforms of state fiscal equalisation relations in Poland, to identify reform barriers and their causes and to develop suitable alternatives to the solution of the existing problems. In so far, the study is also supposed to be a contribution to the further development of the theory of federalism and of the economics of institutions, based on the example of Poland.

Poland's policy aims for a decentralisation of state organisation. After the breakdown of the communist system in 1989, in which almost all tasks were performed by the centralised state, the municipal level has already received an increase in competences, especially in the area of the fulfilment of tasks. For example, the communities (gminas) and districts (powiats) are responsible for the operation of kindergartens as well as of elementary, secondary and professional schools. Other typical local tasks too, e.g. water supply, sewage disposal, waste management etc., which used to be provided by state companies, are nowadays provided by the gminas. Compared to other states, the Polish provinces (woje¬wod¬s) have little competences as far as expenses are concerned. Their activities are mainly directed at the support of regional economic development and the development of the regional infrastructure.

Still, the formal autonomy of communities and districts is more or less neutralised by inadequate financial supplies. Merely the communities have the opportunity to generate their own income by way of raising local taxes (within given limits). Districts and provinces only receive a divvy of the income taxes and corporation income taxes raised by the central government. The most important financing instrument of these levels are vertical transfer payments, a fact which leads to enormous dependencies and restricted ranges of action. Especially on a regional level increased acting allowances and a corresponding provision of funds is absolutely necessary.