A Retrospective Study of State Aid Control in the German Broadband Market

38 Pages Posted: 19 Feb 2021

See all articles by Tomaso Duso

Tomaso Duso

German Institute for Economic Research (DIW Berlin); TU Berlin- Faculty of Economics and Management - Empirical Industrial Organization; Centre for Economic Policy Research (CEPR)

Mattia Nardotto

KU Leuven

Jo Seldeslachts

KU Leuven - Faculty of Business and Economics (FEB); German Institute for Economic Research (DIW Berlin)

Multiple version iconThere are 3 versions of this paper

Date Written: February 2021

Abstract

We provide an evaluation of the impact of public subsidy schemes that aimed to support the development of basic broadband infrastructure in rural areas of Germany. Such subsidies are subject to state aid control by the European Commission (EC). While the EC increasingly recognises the role of economic analysis in controlling public aid to companies, there are to date no full retrospective studies performed on state aid control, especially assessing the so-called balancing test. In this study, we do not only analyse whether the aid was effective in solving a market failure – low broadband coverage in rural areas – but also study its impact on competitive outcomes, on both rival firms and consumers. We adopt a difference-in-differences framework after using a matching procedure to account for selection on observables. We find that the aid significantly increased broadband coverage. More importantly, we find that the number of internet providers has significantly increased in the municipalities receiving aid. This additional entry decreased average prices. Therefore, the subsidies complied with EU state aid rules, both in terms of effectiveness and competition.

Keywords: State aid, ex-post evaluation, broadband, coverage, entry, competition, prices

JEL Classification: C23,D22,L1,L4,L64

Suggested Citation

Duso, Tomaso and Nardotto, Mattia and Seldeslachts, Jo, A Retrospective Study of State Aid Control in the German Broadband Market (February 2021). DIW Berlin Discussion Paper No. 1931, Available at SSRN: https://ssrn.com/abstract=3788782 or http://dx.doi.org/10.2139/ssrn.3788782

Tomaso Duso (Contact Author)

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

TU Berlin- Faculty of Economics and Management - Empirical Industrial Organization ( email )

Berlin, 10585
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Mattia Nardotto

KU Leuven ( email )

Naamsestraat 69
Leuven, 3000
Belgium

HOME PAGE: http://sites.google.com/site/mattianardotto/Home

Jo Seldeslachts

KU Leuven - Faculty of Business and Economics (FEB) ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

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