Research Interest

Topics

Industries

Biography

Michael Troege has been teaching Finance at ESCP Europe since 2000. Professor Troege received a master in Mathematics from the Ludwig Maximilians Universität München in 1993. He then obtained a DESS in Finance from the Institut d’Etudes Politiques de Paris and in 1999 a Ph.D. in Financial Economics from Humboldt Universtät Berlin. Prior to joining ESCP Europe he was research associate at the Wissenschaftszentrum Berlin (WZB) a government sponsored think tank and visiting scholar at J.L. Kellogg Graduate School of Management at Northwestern University.
Professor Troege’s research focuses on game theory and commercial banking. In particular, he is studying the competitive interaction of banks in credit markets. In this context he has participated as expert in the European Commission’s Sector Inquiry in Retail banking published in 2007. His articles have been published in a variety of academic and practitioner-oriented journals including the Journal of Mathematical, Economics, Games and Economic Behaviour, Journal of Economics, European Journal of Finance, International Journal of Industrial Economics, Annales d'Economie et de Statistiques and EC Competition Policy Newsletter. Professor Troege is also an active referee for a number of academic journals including the International Journal of Industrial Economics, Manchester School, Journal of Evolutionary Economics, European Management Journal.
In addition to his academic research, Professor Troege has served as a consultant and participated in training programs for banks and multi-national corporations on a range of investment, financing, and valuation issues.
Professor Troege teaches the Financial Institution Management Course as well as advanced Corporate Finance classes and participates in a variety of Executive Education programmes including the Stege Finance and the Specialized Master in Finance. He is also currently serving as one of the scientific directors of the Master of Economics, Banking and Finance in Vietnam.

Current research

Working Papers and Projects:

Islamic Finance and Financial Market Regulation
Abstract: Is there an underlying economic rational for the rules of Islamic Finance? This paper argues that Islamic Finance can be understood as a form of financial market regulation. In fact financial market regulation does not necessarily have to be modelled upon western examples. We illustrate with a number of examples how Islamic financial regulation could differ from standard financial regulations. Thinking about the economics of rules should enable Islamic countries to develop well functioning financial systems without mimicking what western countries have done.

Are Fragmented Retail Banking Markets Inefficient?
Abstract: Using publicly available survey data collected by the European Commission, this paper documents a surprising relationship between bank concentration at the national level and satisfaction of SME borrowers. In more concentrated markets the perceived price level is lower, the incidence of credit rationing higher and the quality of the bank's services better than in fragmented markets with many small banks.

Strategic Effects of Creditworthiness Tests (with J.Jim)
Abstract: The paper explores the strategic effects of creditworthiness tests in a banking duopoly. It is shown that the acquisition of information about a borrower's creditworthiness can be a strategic substitute or a strategic complement, depending on the ex ante expected quality of the borrower. In equilibrium, banks will acquire information of symmetric quality if they cannot observe the competitor's screening effort. However, if each bank observes its competitor's investment in information acquisition before offering a loan, asymmetric relationship equilibria arise, where one bank specializes in information acquisition. If information is expensive, this specialization of banks is inefficient and harms firms.

The Insider’s Curse (with Angel Hernando-Veciana)
Accepted for resubmission at “Theoretical Economics”
Abstract: Normally it would seem to be a good idea to learn as much as you can about the value of an object you are trying to buy in an auction. This paper shows that this may not be such a good idea if the other auction participants know that you have good information about the value of the object  being sold and if they can observe your bidding behaviour. In particular if the auction is very competitive with a lot of buyers trying to bid for the object on sale an informed insider will in fact make less profits than a non informed outsider.

On the Effects of Banks’ Equity Ownership on Credit Market (with R. Amir)
Abstract: Recent deregulation of the banking sector in the US (Gramm-Leach-Bliley Act) and in Europe (Second European Banking Directive) allows commercial banks to enter merchant banking, i.e. hold equity in non-financial firms. A stylised auction-theoretic model is developed to investigate the effects of bank equity stakes in firms on the competition in bank loans. The main finding is that an equity stake confers a competitive advantage to the holding bank and may deter equity acquisition by other banks, resulting in high interest rates charged to firms. This finding sheds new light on the role of equity in establishing bank-firm relationships and unearths an antitrust dimension in the controversial debate on the separation of banking and commerce.

On Additive Spillovers and Returns to Scale in R&D (with R. Amir and  J. Jin)
Accepted at the “International Journal of Industrial Economics”
Abstract: The paper explores economically meaningful forms of cost functions for process research and development in the presence of imperfect appropriability of inventive output. We propose as criterion that a given R&D investment should always produce more cost reduction if devoted to one lab rather than two independent labs operated under natural spillovers. With input spillovers this postulate is broadly satisfied. However, with output spillovers this is generally not the case for R&D technologies having decreasing returns to scale. We identify economically plausible restrictions on the size of spillovers and on the properties of the R&D cost function so as to bring about compatibility with the above postulate. Some empirical evidence in support of both the postulate and of its theoretical implications is discussed.

Published research:

Applying the Market Economy Investor Principle to State Owned Companies - Lessons Learned from the German Landesbanken Cases (with H. Friederiszick) “EC Competition Policy Newsletter” (2006) No. 1.
Abstract: The Market Economy Investor Principle (MEIP) has become the cornerstone for the assessment of the state aid character of public investments. We explain in detail how financial theory should be applied to assess this principle and identify a crucial shortcoming in the current practice of verifying this principle with the case of the German Landesbanken.

R&D Competition and Endogenous Spillovers (with J. Jin), Manchester School, Vol. 74, No. 1, pp. 40-51, January 2006.
Abstract: The paper examines firms' choices between innovation and imitation in duopoly. We show that in the unique equilibrium asymmetric firms choose the same level of expenditure on imitation and the same ratio of innovative cost reduction to output. We evaluate the marginal contribution of innovation and imitation expenditure by small and large firms to consumer surplus and welfare, and discuss the desirability of differentiated R&D subsidies on innovation and imitation in terms of R&D tax rebates.

Do Bank-Firm Relationships reduce Bank Debt? Evidence from Japan (with T. Miarka), European Journal of Finance, (2005) Vol.11:75-92.
Abstract: The paper analyses how close relationships to banks influence a firm's choice of financing its debt through publicly marketed bonds or bank loans. It is shown that large Japanese firms use less bank debt, if banks own shares in the firm or bank employees are members of the firm's board. This result supports a theoretical framework, where banks are able to control agency problems associated with debt. Firms use bank loans in order to be monitored, which enables them to access cheaper bond finance. Closer bank-firm relationships facilitate monitoring for the bank and reduce therefore the need for bank finance.

On Taxation Pass-Through for a Monopoly Firm (with R. Amir & I. Maret), Annales d'Economie et de Statistique, N°75/76, 2004, p. 155-172.
Abstract: This paper investigates the pass-through of an excise tax imposed on a monopoly firm with constant marginal cost. The optimal price increases as tax increases for any demand function. Tax pass-through is globally under or in excess of 100% according as the direct demand function is log-concave or log-convex. The analysis relies on supermodular optimization and delivers conclusions based on minimal sufficient assumptions in a simple, broadly accessible and self-contained framework. Further results allow for mixed conditions that provide precise and local determination of pass-through. Several illustrative examples are given. Policy conclusions relating to the relative wisdom of taxing high versus low cost monopoly firms are drawn from the results.

Learning by doing, spillovers and shakeouts (with J. Y. Jin & J. Perote-Pena), Journal of Evolutionary Economics, Vol. 14, N° 1, January 2004, p. 85-98.
Abstract: This paper studies industry evolution driven by non strategic learning by doing and spillovers. We characterize a dynamic process of cost and output changes and its effect on welfare and industry profits. The paper gives conditions for shakeouts to occur and analyzes the key factors affecting these conditions. Since shakeouts could lead to a long-run social loss due to higher market concentration, there is a role for a government to play in limiting unnecessary shakeouts. The most effective way to do so is to enhance spillovers

Organising Product Stewardship in Large Chemical Companies, Journal of Business Chemistry, (2004) Vol.1 (2): 26-36.
Abstract:We examine how well guidelines and management codes for the organization of product safety are implemented in the chemicals manufacturing industry and how the incentives of companies to efficiently implement and follow these guidelines can be enhanced.  These questions will be illustrated with two case studies concerning the implementation of the “Responsible Care” framework and in particular the concept of “Product Stewardship” in manufacturers of fine chemicals.

Timing of Public Information and Cost Reduction (with J. Jin), Journal of Economics, Vol. 75, Issue 2, 2002, p. 227-237.
Abstract: The paper analyzes how the timing of demand information influences firms' profits and welfare. We find a conflict between the socially optimal timing and the timing preferred by firms. Firms prefer to receive public information after process innovation, whereas it would be socially optimal to provide them with such information earlier. Provision of public information by governments can alleviate this problem.

Publications