Killer Acquisition Theory in the Digital Age

https://www2.slideshare.net/mberre/berre-petit-2020-killer-acquisition-theory 

Max Berre and Nicolas Petit

This paper seeks to contribute to the growing literature on killer acquisitions and to the debate contextualizing the emergence of the Big-Data industry, in order to enrich and inform the debate, proposing threshold ideas for purposes of abuse of dominance and merger control. To that end, it takes a different approach, deconstructing the killer acquisition narrative. Because killer acquisitions are defensive in nature, serving to protect the market-share of incumbent firms.   

Overall, the debate can be approached via the examination of the relative likelihoods of competing acquisition objectives, effects, and contextual realities. Testing these may yield viable examination tools which could be put to use in real-world policy, advisory, or litigation contexts. The killer acquisition narrative is based on several conjectures that must be critically examined and rigorously tested prior to undertaking policy reform. This paper’s contribution is to provide a framework for said critical examination.

The 21^st-century emergence of the fourth-industrial-revolution has given rise to new technological and economic realities. The Big-Data and Internet of Things (IoT) industries in the digital marketplace has given rise to heated and lively debate concerning market-structure and competition-policy ramifications going forward as the 21^st century develops.

Because traditional measures and dynamics are fundamentally challenged by both the technology and the associated economic dynamics of 21^st century digital markets, exploration of the market-structure measures and dynamics of industries related to the fourth-industrial-revolution is increasingly necessary as new market-realities evolve. 

What is called for in a practical sense, is an examination of the various ways in which start-up acquisitions in the digital market-space can be examined, approached and weighed, for purposes of ex-ante or export investigation of mergers, acquisitions, and abuse of dominance.  

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Max Berre is an economist at Audencia Business School who has worked as a sovereign debt expert at the Inter-American Development Bank in Washington and has taught financial economics at Maastricht University in the Netherlands.

Nicolas Petit is a professor EU Competition Law based at the European University Institute, and is Joint Chair in Competition Law at the Department of Law and at the Robert Schuman Centre for Advanced Studies. He is also invited Professor at the College of Europe in Bruges. 

COHERENT STRESS TESTING: A BAYESIAN APPROACH TO SCENARIO ANALYSIS AND STRESS TESTING

https://www2.slideshare.net/mberre/hoffman-berre-coherent-stress-test 

Hoeffman and Berre

In January 2009, during the depths of the financial crisis, the Basel Committee on Banking Supervision published its view that the bank stress-testing which had so-far taken place across Europe and the US was insufficient for a number of reasons.

While the financial market had grown considerably more complex and less transparent since the previous round of financial crises at the end of the 20^th century, stress-testing had not kept up with the times. Forward-looking information was not-being taken into account. 

Rather, stress-test so far has been undertaken in the so-called frequentist way, meaning that purely quantitative and statistical approaches have been used. By definition, this way of doing things only examines historical data. Subjective data, which, in expert hands could be used to detect when it is that the current circumstances are likely to change -perhaps even in a heretofore unseen way- is overlooked. Also overlooked is forward-looking information of any kind. Nassim Taleb's famous book The Black Swan swan points to precisely this sort of thinking as being a major weakness in daily wisdom of financial economists prior to the start of the crisis. The idea that the situation might change was not appreciated. Nor was the idea that we may need to update our information to take into account current happenings.

In 2009 and 2010 Committee of European Banking Supervisors (CEBS) implemented the first and second EU-wide stress tests which were conducted along frequentist lines, examining at first only the largest 22 banks in Europe and later all of the systemically most important bank at the national level in Europe. Not surprisingly, the first two European stress-tests were widely considered failures. In 2011, the newly commissioned European Banking Authority (EBA) has thus taken to the task. Because the European stress tests tried to answer the question of what would happen in the event of both current loss expectations as well as a worst-case scenario whereby losses far exceeded current loss expectations but overlooked the possibility of multi-stage economic shocks, they represented the frequentist point of view. Essentially, they do not revise losses in a dynamic way. Thus, they have left something to be desired, irrespective of the number of banks or percentage of GDP investigated. 

Many experts now consider that the key missing ingredient from stress testing procedures is a solid way of capturing the co-relationships between the various stress events. With this in mind, the Bayesian net can help us understand the relationship between some of the key events. Consider for example the relationship between events A and C. 

The Bayesian Net

WHAT IS NEEDED IN STRESS TESTING?

The most important aspect needed in stress testing in order to overcome black swan events is a forward-looking element. Subjective probability is a plausible way in which this can be achieved. A subjective probability is essentially an opinion – hopefully a well-informed one – regarding the probability distribution of an event occurring. While there is no mathematical proof behind the answer, one can expect that in addition to historical probability distribution, a subjective probability might be influenced by expectations, indicators as to what may occur in the future, and indicators as to why this time might be different. The most significant upsides to this approach are the incorporation of a wide range of indicative and qualitative data, as well as the non-reliance on vast and often difficult-to-obtain amounts of data. The latter factor would render this approach particularly valuable during scenarios involving one or more extremely rare (statistical tail) events.

Another important issue which needs to be addressed in stress testing is correlation of shocks. In many stress tests, this has truly come to be a key missing ingredient. The simple fact that a financial institution survives an economic shock may might not be perfectly indicative of bank-survivability when the economic shock in question might also set off (or might otherwise be associated with) a chain reaction of economic shocks.  

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About the Authors:

-Max Berre is an economist at the EDHEC-Risk Institute (Ecole Des Hautes Etudes Commerciales du Nord) who has worked as a sovereign debt expert at the Inter-American Development Bank in Washington and has taught financial economics at Maastricht University in the Netherlands.
-Kevin Hoefman is a lecturer of software programming at Hogeschool West-Vlaanderen and a former software engineer and video game programmer. 

What Makes a Credible Minimum Wage Study?

http://escholarship.org/uc/item/3hk7s3fw#page-1

A study released earlier this year by the University of California's Institute for Research on Labor and Employment takes a nuanced view of recent studies which have been published about the labor-market effects of the minimum wage. 

Because minimum wage policy has recently become a highly-contentious policy issue in both the US and Europe, the academic debate has also intensified, with much of the discussion focusing on the underlying empirical methodology to be used for examination of the minimum wage. At stake is the accurate determination of the effect of minimum wage policy. 

The study considers use of spatially-related control variables to be essential, due to both structural and cyclical differences between and among states, cities, regions, and counties. A valid minimum wage study should also, according to the authors, differentiate between different segments of the labor force and should be able to measure actual effects on wages of minimum wage statutes. Overall, labor-market heterogeneity is not taken into effect as much as it should be. Failure to do so can and has clouded empirical results in minimum wage studies.

Abstract

We assess alternative research designs for minimum wage studies. States in the U.S.with larger minimum wage increases differ from others in business cycle severity, increased inequality and polarization, political economy, and regional distribution. The resulting time-varying heterogeneity biases the canonical two-way fixed effects estimator. We consider alternatives including border discontinuity designs, dynamic panel data models, and the synthetic control estimator. Results from four datasets and six approaches all suggest employment effects are small. Covariates are more similar in neighboring counties, and the synthetic control estimator assigns greater weights to nearby donors. These findings also support using local area controls.
http://escholarship.org/uc/item/3hk7s3fw#page-1

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Max Berre is an economist at the EDHEC-Risk Institute (Ecole Des Hautes Etudes Commerciales du Nord) who has worked as a sovereign debt expert at the Inter-American Development Bank in Washington and has taught financial economics at Maastricht University in the Netherlands.

OXFAM: Austerity Failed in Africa, Latin Am, Asia. Europe No Different

http://www.oxfam.org/sites/www.oxfam.org/files/bp174-cautionary-tale-austerity-inequality-europe-120913-en_1.pdf

Last month, Oxfam published a scathing report comparing Europe's post-2008 austerity policies, to those imposed by the IMF on Asia, Africa, and Latin America in the 1980s and 90s. While austerity in Europe have been guided by a certain naivete and blissful ignorance regarding the details and outcomes of austerity politics and structural adjustment in Asia, Africa and Latin America, the reality on the ground is that austerity programs in Europe, as in Asia two decades ago, have begun dismantling the very mechanisms responsible for reducing inequality and promoting stable, sustainable economic growth. Results were rising poverty and stagnant growth. 

As a result of austerity measures, Europe has begun seeing similar results, including slowest growth of all of the world's major economic regions, and slowest crisis recovery. Deficits have also risen as a percentage of GDP due to economic contraction. Moreover, according to Oxfam, European countries are suffering record levels of long-term and youth unemployment. Nearly one in ten working households in Europe now lives in poverty. Effects are most severe in countries that have undertaken the most aggressive spending cuts. Much like in the developing world, the dismantling of social cohesion has also lead to a rise in unrest in Europe. After policy failures in Asia and Latin America, traditional leading proponents of austerity in the developing world, the IMF and World Bank, have begun to formally recognize that austerity has stunted both economic growth and equality in much of the developing world. Unfortunately, it appears that Europe's policy circles failed learn that lesson from events in the developing world.

The Oxfam report makes policy recommendations focusing on investment in human capital development, expansion in public services, strengthening of institutional democracy and tax reform aimed at counteracting tax avoidance, as well as establishing a more progressive tax code. 

Abstract

European austerity programmes have dismantled the mechanisms that reduce inequality and enable equitable growth. With inequality and poverty on the rise, Europe is facing a lost decade. An additional 15 to 25 million people across Europe could face the prospect of living in poverty by 2025 if austerity measures continue. Oxfam knows this because it has seen it before. The austerity programmes bear a striking resemblance to the ruinous structural adjustment policies imposed on Latin America, South East Asia, and sub-Saharan African in the 1980s and 1990s. These policies were a failure: a medicine that sought to cure the disease by killing the patient. They cannot be allowed to happen again. Oxfam calls on the governments of Europe to turn away from austerity measures and instead choose a path of inclusive growth that delivers better outcomes for people, communities, and the environment. 

http://www.oxfam.org/sites/www.oxfam.org/files/bp174-cautionary-tale-austerity-inequality-europe-120913-en_1.pdf

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Max Berre is an economist at the EDHEC-Risk Institute (Ecole Des Hautes Etudes Commerciales du Nord) who has worked as a sovereign debt expert at the Inter-American Development Bank in Washington and has taught financial economics at Maastricht University in the Netherlands.

NPR Piece: Can Human Genes Be Patented?http://www.npr.org/blogs/health/2013/04/15/177035299/supreme-court-asks-can-human-genes-be-patented

US Supreme Court Decision on Human Genome Patents http://www.supremecourt.gov/opinions/12pdf/12-398_1b7d.pdf

UK Supreme Court Decision on Human Genome Patents http://www.supremecourt.gov.uk/decided-cases/docs/UKSC_2010_0047_Judgment.pdf

ROI & The Economic Importance of Public Support of Scientific Research

Last month, academic advocate Zack Kopplin debated the importance of maintaining funding for scientific research, even in the face of other economic priorities. Kopplin argued that the Return on Investment reaped from the results of such research far outweigh both any costs associated with said research, and borrowing costs. 

Stephen Moore, a former fellow of both the Heritage Foundation and the Cato Institute, two prominent Washington DC-based free-market think-tanks provided the counter-point to Kopplin's argument. While at first arguing that the debt takes precedent over scientific funding, Moore resorted to mocking Kopplin's views via anecdotal mention of publicly-funded research on snail mating habits. "You are not a scientist" responded Kopplin. The host then chimed in to say that anecdotal arguments really have no place in a serious policy debate. 

We can all bring up anecdotes which, while not scientific, representative, typical, underline one's point of vies in the argument. In response to Moore's mention of funding for snail mating habits, I can also submit seemingly questionable research: on Oyster Glue.

2013 Story About Research on Oyster Glue
2010 Story About Research on Oyster Glue

For the past 13 years, research has been ongoing at Indiana's Purdue University, on exactly how Oysters, Mussels, Barnacles and other mollusks glue themselves to underwater surfaces. If this research doesn't seem relevant to society overall, think again. 

Although oyster glue research seems unorthodox, this research may very well yield an organic non-toxic glue, which can be used as an underwater construction material, or even to glue broken bones still inside a patient's body. From the economic point of view, the potential returns are enormous. So, we all have our anecdotes.

All jokes and anecdotes aside, the link between support for scientific research, and future economic growth is enormous, and simply cannot be downplayed or overlooked. 

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Max Berre is an economist at the EDHEC-Risk Institute (Ecole Des Hautes Etudes Commerciales du Nord) who has worked as a sovereign debt expert at the Inter-American Development Bank in Washington and has taught financial economics at Maastricht University in the Netherlands.

LSE Study: Self-Fulfilling Crisis of Eurozone Sovereign Debt

Self-Fulfilling Crises in the Eurozone: An Empirical Test

In an empirical study on Eurozone sovereign debt published at LSE and at CEPS, an EU-financed economic policy think tank, has found definitive evidence of the fragility of Eurozone-member-nation debt vis-a-vis non-eurozone EU debt. In particular, the study finds that aggressive growth in Eurozone sovereign bond spreads since 2010 have been generally disconnected from key market fundamentals. Just outside of the Eurozone meanwhile, standalone countries have faced a much lower degree of sovereign bond volatility, despite having similar Debt-to-GDP ratios as their Eurozone counterparts.

What this all means is that the credibility and competence of the European institutions behind the Euro, are being called into question by the market, as panicky investors flee the Eurozone, and countries that are hit by the resulting liquidity crises are forced apply stringent, recession-causing austerity measures. While Greece had indeed accumulated an unsustainable Debt-to-GDP ratio, other Eurozone countries that were hit by the crisis had Debt-to-GDP levels, which were certainly not worse than the of the US and the UK. What is needed, LSE argues, are pro-liquidity policies aimed at preventing the spread of sovereign debt liquidity polices from one country to the next. Exactly the sort of the thing Merkel and her henchmen are against.

The study's main author, Professor Paul De Grauwe, a former Belgian senator, is widely considered to be Belgium's most renowned economist █

Abstract

We test the hypothesis that the government bond markets in the Eurozone are more fragile and more susceptible to self -fulfilling liquidity crises than in stand -alone countries. We find evidence that a significant part of the surge in the spreads of the PIGS countries in the Eurozone during 2010-11 was disconnected from underlying increases in the debt to GDP ratios and fiscal space variables, an d was the result of negative self -fulfilling market sentiments that became very strong since the end of 2010. We argue that this can drive member countries of the Eurozone into bad equilibria. 

We also find evidence that after years of neglecting high government debt, investors became increasingly worried about this in the Eurozone, and reacted by raising the spreads. No such worries developed in stand -alone countries despite the fact that debt to GDP ratios and fiscal space variables were equally high and increasing in these countries.
http://www.ceps.eu/ceps/dld/7085/pdf 

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Paul De Grauwe is a Professor in European Political Economy and head of the European Institute at the London School of Economics. He is also professor emeritus in international economics at KU Leuven and former member of the Belgian Federal Parliament.