Should you travel to India for your Hepatitis C cure?

Gilead, the company who invented Solvadi, a pill that cures hepatitis C, has just announced its global price discrimination scheme.

In the US, a twelve week regimen of the $1000 pills costs $84,000, while in India a the same treatment costs only $1800.

The price difference could pay for a pretty nice 3 month vacation to India.

What is the number one business book on iTunes today?

Vanderbilt and Owen's own Brendan Moynihan's "What I learned losing a million dollars."

Listen to his podcast on the Tim Ferris show.

“One of the rare noncharlatanic books in finance.”
– Nassim Nicholas Taleb, author of The Black Swan and Antifragile

“There is more to be learned from Jim Paul’s true story of failure than from a stack of books promising to reveal the secret formula for success…this compact volume is filled with a wealth of trading wisdom and insights.”
– Jack Schwager, author of Hedge Fund Market Wizards

The newest book in The Tim Ferriss Book Club (all five books here) is a fast read entitled What I Learned Losing a Million Dollars. It packs a wallop.

Is RG III a sunk cost?

No, but the draft picks the Redskins paid for him are.  The  NY Times has more:

The moment the owner Daniel Snyder signed off on trading those draft picks to the St. Louis Rams to get Griffin, those picks were gone forever. Poof! Never coming back. 

From that point, the strictly logical approach would have been for coaches and management to treat Griffin like any other rookie who had great potential but a lot of work to do to live up to it. That doesn’t mean that they should have plopped him on the bench every time he made an errant throw. Of course he needed (and, apparently, still needs) to learn the pro-level game, and it’s worth sacrificing wins today if you are getting a more skilled player for the longer run. No one argues that the 1998 Indianapolis Colts should have parked Peyton Manning on the bench amid his 3-13 rookie season. 

But there are plenty of indications that rather than treat Griffin like another promising but unfinished player, both fans and, at times, the team’s coaches seem to view him through the prism of what was paid to get him.

Strategy is simple...become a monopolist

WSJ has an essay from the head of PayPal who reminds us that capturing value is more important than creating value:

...U.S. airline companies serve millions of passengers and create hundreds of billions of dollars of value each year. But in 2012, when the average airfare each way was $178, the airlines made only 37 cents per passenger trip. Compare them to Google,GOOGL -0.56% which creates less value but captures far more. Google brought in $50 billion in 2012 (versus $160 billion for the airlines), but it kept 21% of those revenues as profits—more than 100 times the airline industry's profit margin that year. Google makes so much money that it is now worth three times more than every U.S. airline combined.

Airline competition is so intense that firms capture only 1% of the value that they create.  Google has far less competition and is able to capture 20% of the value that they create.  20% of their smaller pie is worth way more than 1% of the airlines' larger pie.

MAXIM:  Creating value is only the first step.  You also have to figure out how to capture it.  

Is "artharitis" a good excuse for price fixing?

I first heard that expression from a defendant in a price-fixing trial brought by the Justice Department against a gas station owner in Iowa.  The defendant called the gas station across the highway every morning to ask what price he was charging.  Since she had to match his price (otherwise she would sell no gasoline), she argued that a simple phone call would save her one more painful trip up the ladder to change the price on the sign. 

At first I thought it was just rural slang, but when I saw the jury foreman walk in with a pair of jeans so loose that you could see the top of his inter-gluteal crevice (one of my students who is also a surgeon gave me that expression when he saw me struggling to avoid saying “butt crack” in class), I suspected it was part of the trial strategy.   The defendant's attorney wore a rumpled white linen suit and spoke with a thick accent, which contrasted with the attorneys and economists from “the Federal Government in Washington, DC.” All of us were wearing dark suits and speaking with no accent.  Her attorney used the expression again in his closing argument to chastise us for wire-tapping an old widow who was coping with her “artharitis” as best she could.

Needless to say, we lost the trial--we got “home fried.”  But years later, when I ran this case past two second-grade classes, I got a unanimous conviction.  Of course, I first had to explain that antitrust cops (my daughter was surprised that I had been a cop) enforce laws that make it a crime to discuss prices with your competitors.  One of her classmates who almost cried when I explained to her that the Sherman Act covered conversations with her friends.  The idea that there are some things that you cannot share with your best friend was extremely upsetting to her.  

Economists help humans get dates

TED Talk on how economists help Internet companies solve problems

How to tell if your resources give you a sustainable competitive advantage

According to the RBV view of strategy a resource can give you a sustainable competitive advantage only if the above conditions are met.

Some examples from HBS:

Valuable resources can take a variety of forms, including some overlooked by the narrower conceptions of core competence and capabilities. They can be physical, like the wire into your house. Potentially, both the telephone and cable companies are in a very strong position to succeed in the brave new world of interactive multimedia because they own the on-ramp to the information superhighway. Or valuable resources may be intangible, such as brand names or technological know-how. The Walt Disney Company, for example, holds a unique consumer franchise that makes Disney a success in a slew of businesses, from soft toys to theme parks to videos. Similarly, Sharp’s knowledge of flat-panel display technology has enabled it to dominate the $7 billion worldwide liquid crystal display (LCD) business. Or the valuable resource may be an organizational capabilityembedded in a company’s routines, processes, and culture. Take, for example, the skills of the Japanese automobile companies—first in low-cost, lean manufacturing; next in high-quality production; and then in fast product development. These capabilities, built up over time, transform otherwise pedestrian or commodity inputs into superior products and make the companies that have developed them successful in the global market.

Why is the NFL so valuable?

CBS just bid $300 million, and won an auction to broadcast eight thursday night games.  Broadcast networks like CBS use the NFL to attract viewers from different media for one reason,

TV channels see sports as vital to their lineups because 97% of all sports programming is watched live, .... CBS, 21st Century Fox Inc.'s Fox, NBC and Walt Disney Co. DIS +0.19% 's ESPN have committed to pay $5 billion a year to air NFL games through the 2021 season.

Euro weakens as ECB reduces interest rates

The Financial Times has an article on the recent moves by the European Central Bank to stimulate the domestic economy, 

“The ECB is the first central bank to announce large-scale asset purchases and negative deposit rates. The euro could weaken further if European banks use the cash to purchase assets abroad via euro-funded carry trades.”

As a result, the euro fell below  $1.3 and is down almost 5 per cent against the dollar since the beginning of July.

The WSJ chimed in with the graphic above that better illustrates the ECB strategy:  they are buying bonds issued by Eurozone banks, and then charging them 0.2% interest unless the banks lend the euros out.  

If as the Financial Times article suggests, the Eurozone banks make loans to foreign investors, the Euros will weaken by the "carry trade."  Here's how:  A US investor, for example, would borrow from Eurozone banks, sell the borrowed euro's to buy dollars, and then invest the dollars in the US.  This represents an increase in the supply of euros (or the demand for dollars) in the market for foreign exchange.  

Dollar strengthens on expectations of US interest rate rise

Two reasons for this:

1. Investors sell euros to buy dollars to invest in the US to take advantage of the higher US rates. 

2. US borrowers borrower in foreign currency to take advantage of the lower foreign rates, and then sell the foreign currency to buy dollars to invest in the US.  This is called the "carry trade."

Both factors increase the demand for dollars in the market for foreign exchange which raises the "price" of a dollar, the exchange rate.