Wal-Mart Stores, Inc. Strategic Corporate Research Report

[Excerpt] Wal-Mart Stores, Inc. (hereinafter Wal-Mart) is the second-largest company in the world. It has more annual revenue than the GDP of Switzerland. It sells more DVDs, magazines, books, CDs, dog food, diapers, bicycles, toys, toothpaste, jewelry, and groceries than any other retailer does worldwide. It is the largest retailer in the United States, Mexico, and Canada, the second-largest in the United Kingdom, and the third largest in Brazil, With its partners, it is the largest retailer in Central America. Wal-Mart is also the largest private employer in the United States, Mexico, and Canada, and it has 1.8 million employees around the globe. Wal-Mart is so huge that it effectively sets the terms for large swaths of the global economy, from retail wages to apparel prices to transoceanic shipping rates to the location of toy factories. Indeed, if there is one single aspect to understand about the company, it is the fact that Wal-Mart is transforming the relations of production in virtually every product category it sells, through its relationships with suppliers. But its influence goes far beyond the economy. It sets social policy by refusing to sell certain types of birth control. Its construction of supercenters molds the landscape, shapes traffic patterns, and alters the local commercial mix. The retail goliath shapes culture by selling the music of patriotic country singer Garth Brooks but not the critical (and hilarious) The Daily Show with Jon Stewart Presents America (the Book): A Citizen’s Guide to Democracy Inaction. It influences politics by donating millions to conservative politicians and think tanks. Wal-Mart is, in short, one of the most powerful entities in the world. Not surprisingly, Wal-Mart has developed a long list of critics, including unions, human rights organizations, religious groups, environmental activists, community organizations, small business groups, academics, children’s rights groups, and even institutional investors. These groups have exposed the company’s illegal union-busting tactics, its many violations of overtime laws, its abuse of child labor, its egregious healthcare policies, its super-exploitation of immigrant workers, its rampant gender discrimination, the horrific labor conditions at its suppliers’ factories, and its unlawful environmental degradation. They have also chronicled the deleterious effect Wal-Mart has on the public coffers and the quality of community life. New Wal-Mart stores and distribution centers often swallow up government subsidies and tax breaks, take public land, create more congestion, reduce overall wages, destroy retail variety, and increase public outlays for healthcare. To its critics, Wal-Mart represents the worst aspects of 21st-eentury capitalism. Wal-Mart usually counters any criticism with two words: low prices. It is a powerful mantra in a consumerist world. The company does make more products affordable to more people, and that is nothing to sneeze at when wages are stagnant, jobs insecure, pensions disappearing, and health coverage shrinking. With low prices, Wal-Mart helps working men and women get more from their meager paychecks, more necessities like bread, and more luxuries, like roses, too. It is a brilliant and incontrovertible argument, and Wal-Mart’s most ardent defenders take it even farther. They say its obsession with low prices makes the entire economy more efficient and more productive. Suppliers and competitors have to produce more and better products with the same resources, and that redounds to everyone. In the micro, it means falling prices and rising product quality. In the macro, it means economic growth, more jobs, and higher tax revenues. To its defenders, Wal-Mart represents the best aspects of 21st-century capitalism. Despite their radical opposition, critics and defenders of the world’s largest corporation agree on one thing: Wal-Mart represents 21st-century capitalism. It symbolizes a system of increasing market penetration and decreasing social regulation, where more and more aspects of life around the world are subject to economic competition. Wal-Mart’s success rests upon the ongoing destruction of social power in favor of corporate power. It takes advantage of the conditions of the neo-liberal world, from the availability of instant and inexpensive global communication to the continuing collapse of agricultural employment around the world to the rapid diffusion of technological innovation to the oversupply of subjugated migrant labor in nearly every country to the continued existence of undemocratic and corporate-dominated governments. For some, this is as it should be, all part of capitalism’s natural and ultimately benign development. For the rest of us, Wal-Mart is at the heart of what is wrong with the world

Don\u27t Panic! Defending Cowardly Interventions During and After a Financial Crisis

How should we regulate the U.S. financial system after the financial crisis when we face the task with a radically inadequate understanding of what went wrong and what effect proposed regulations will likely have? This paper explores three quite different approaches to regulating in the face of severe uncertainty: the libertarianism of Friedrich Hayek, the conservatism of Michael Oakeshott, and the liberalism of John Maynard Keynes. Each man thought deeply about the problem of how uncertainty affects human affairs, but each came to different conclusions about how to address such uncertainty. The paper outlines the core, immensely useful insights of each theorist. The paper then outlines the even more useful and persuasive critiques that each launches at the other two. From this collision of viewpoints, the paper outlines a hybrid general approach to regulating the financial system which it (rather tongue-in-cheek) labels cowardly interventions. This approach accepts the basic insight of Keynes that unregulated financial markets will be deeply unstable, causing periodic destructive depressions. Thus, fairly strong regulation of finance is needed. But following the insights of Hayek and Oakeshott, I argue that new regulations should be cowardly. We should as much as possible heed the wisdom embedded in markets and existing institutions. We should identify as best we can the biggest problems that current markets pose, and address those problems with new rules that are measured, limited, market-friendly, and subject to evaluation and pruning. This framework supports a three-part response to the crisis. First, the New Deal structure for regulating banks should be extended to the shadow banking system which was at the heart of the crisis. (What is shadow banking ? Read the paper.) In that structure, the government acts as a lender of last resort to forestall panics while using resolution authority and prudential regulation to replicate much of the discipline of an unregulated market. Second, more specific limited rules should address glaring problems in the mortgage securitization chain. Third, regulatory agencies should be prodded to constantly re-evaluate existing regulation in light of new circumstances. Using this framework, this paper gives a guarded defense of the Dodd-Frank Act. All three elements of a proper response are there in the Act. There are major concerns, however. Most importantly, the Dodd-Frank Act does not do enough to address the largely unregulated shadow banking system. The Act should also have begun the process of eliminating Fannie Mae and Freddie Mac. Even legislation without these weaknesses would not end financial crises forever. However, if the many regulations implementing the Dodd-Frank Act are largely done well, they may postpone the next big crisis for a decade or two, as well as make the next crisis shorter and less severe when it does occur. The Dodd-Frank Act is imperfect even by the standards of a philosophy which emphasizes inevitable imperfection, but on balance it does pretty well under the circumstances

Patterns of technological progress and corporate innovation

The bulk of the global innovative effort takes place in 5 countries: USA, Japan and China as leaders, with France and United Kingdom as immediate followers, which all display, on the long run, a negative marginal value added on innovation. The present paper attempts to answer the following question: why does most of innovative activity takes place in markets apparently hostile to innovation, i.e. giving back negative marginal value added on innovation ? A model is introduced in which any market may be represented as a Selten’s extensive game, subgames of which are played as Harsanyi’s games with imperfect information, by a temporarily finite and changing set of players. The firms’ innovative activity is a Nash’s dynamic equilibrium in which innovating is rational though suboptimal, without premium on innovation being a real economic profit. The model is the theoretical framework for the study of six cases: Ford Motor, General Motors, Honda, Chevron, Akzo Nobel and IBM, which allow to conclude that firms do innovation either because they have to or because this is their comparative advantage and they can do it in an exceptionally efficient way. As economic growth is grounded in efficient business patterns and in some countries those business patterns shape themselves in the context of a strong exogenous pressure on innovation. This leads to the development of economies which, regardless its pace of economic growth and balance of payments, come to a point when marginal value added on innovation is negative. At this point, however, incentives to innovate do not disappear and firms continue to apply the same business patterns and thus do create scientific input which gives back negative marginal real output. This pattern of global technological progress seem to be quite durable, with financial markets that allow to compensate, by successful financial placements, the downturns of innovative projects.innovation; technology; technological progress; corporate strategies

Do Accounting Rules Matter? - The Dangerous Allure of Mark to Market

This Article examines the relative strength of two imperfect accounting rules: historical cost and mark to market. The manifest inaccuracy of historical cost is well known and, paradoxically, one source of its hidden strength. Because private parties know of its evident weaknesses, they look elsewhere for information. In contrast, mark to market for hard-to-value assets has many hidden weaknesses. In this Article we show how it creates asset bubbles and exacerbates their negative collateral consequences once they burst. It does the former by allowing banks to adopt generous valuations in up-markets that increase their lending capacity. It does the latter by forcing the hand of counterparties to demand collateral, even when watchful waiting and inaction is the more efficient course of action when downward cascades generated by mark-to-market accounting might trigger massive sell-offs at prices below true asset value. The fears of private suits and regulatory sanctions on counterparties can compound the problem. Mark to market generates the functional equivalent of bank runs for which the functional equivalent of the automatic-stay rule in bankruptcy is the appropriate response

Adaptive microfoundations for emergent macroeconomics

In this paper we present the basics of a research program aimed at providing microfoundations to macroeconomic theory on the basis of computational agentbased adaptive descriptions of individual behavior. To exemplify our proposal, a simple prototype model of decentralized multi-market transactions is offered. We show that a very simple agent-based computational laboratory can challenge more structured dynamic stochastic general equilibrium models in mimicking comovements over the business cycle.Microfoundations of macroeconomics, Agent-based economics, Adaptive behavior

Making prospect theory fit for finance

The prospect theory of Kahneman and Tversky (in Econometrica 47(2), 263-291, 1979) and the cumulative prospect theory of Tversky and Kahneman (in J. Risk uncertainty 5, 297-323, 1992) are descriptive models for decision making that summarize several violations of the expected utility theory. This paper gives a survey of applications of prospect theory to the portfolio choice problem and the implications for asset pricing. We demonstrate that prospect theory (and similarly cumulative prospect theory) has to be re-modelled if one wants to apply it to portfolio selection. We suggest replacing the piecewise power value function of Tversky and Kahneman (in J. Risk uncertainty 5, 297-323, 1992) with a piecewise negative exponential value function. This latter functional form is still compatible with laboratory experiments but it has the following advantages over and above Tversky and Kahneman's piecewise power function: 1. The Bernoulli Paradox does not arise for lotteries with finite expected value. 2. No infinite leverage/robustness problem arises. 3. CAPM-equilibria with heterogeneous investors and prospect utility do exist. 4. It is able to simultaneously resolve the following asset pricing puzzles: the equity premium, the value and the size puzzle. In contrast to the piecewise power value function it is able to explain the disposition effect. Resolving these problems of prospect theory we show how it can be combined with mean-variance portfolio theor

Experiments and Simulations on Day-to-Day Route Choice-Behaviour

The paper reports laboratory experiments on a day-to-day route choice game with two routes. Subjects had to choose between a main road M and a side road S. The capacity was greater for the main road. 18 subjects participated in each session. In equilibrium the number of subjects is 12 on M and 6 on S. Two treatments with 6 sessions each were run at the Laboratory of Experimental Economics at Bonn University using RatImage. Feedback was given in treatment I only about own travel time and in treatment II on travel time for M and S. Money payoffs increase with decreasing time. The main results are as follows. 1. Mean numbers on M and S are very near to the equilibrium. 2. Fluctuations persist until the end of the sessions in both treatments. 3. Fluctuations are smaller under treatment II .The effect is small but significant. 4. The total number of changes is significantly greater in treatment I. 5. Subjects’ road changes and payoffs are negatively correlated in all sessions. 6. A direct response mode reacts with more changes for bad payoffs whereas a contrary response mode shows opposite reactions. Both response modes can be observed. 7. The simulation of an extended payoff sum learning model closely fits the main results of the statistical evaluation of the data.travel behaviour research, information in intelligent transportation systems, day-to-day route choice, laboratory experiments, payoff sum model

Resolving Social Issues in a Merger: A Fair-Division Approach

One of the most elusive ingredients in the success of a deal is what deal makers euphemistically refer to as "Social issues" - how power, position, and status will be allocated among the merging companies' executives. A failure to resolve these issues often leads to the destruction of shareholder wealth and portrayal of top executives as petty corporates chieftains, unable to subordinate their selfish interests to the goal of promoting shareholder well-being.MERGERS ; EFFICIENCY ; EQUITY

Data Mining in Electronic Commerce

Modern business is rushing toward e-commerce. If the transition is done properly, it enables better management, new services, lower transaction costs and better customer relations. Success depends on skilled information technologists, among whom are statisticians. This paper focuses on some of the contributions that statisticians are making to help change the business world, especially through the development and application of data mining methods. This is a very large area, and the topics we cover are chosen to avoid overlap with other papers in this special issue, as well as to respect the limitations of our expertise. Inevitably, electronic commerce has raised and is raising fresh research problems in a very wide range of statistical areas, and we try to emphasize those challenges.Comment: Published at http://dx.doi.org/10.1214/088342306000000204 in the Statistical Science (http://www.imstat.org/sts/) by the Institute of Mathematical Statistics (http://www.imstat.org