February 24, 2017: The best interviews and technology news highlights from the week are brought together in “Best of Bloomberg Technology,” a weekly long-form program, hosted by Bloomberg Technology’s Cory Johnson.
The show talks about Snapchat. My opinion on the Snapchat IPO is that there is no way Snapchat should be valued at $20 billion. Snap’s monetization model is nothing new. Basically Snap tries to get more eyeballs on their software that they can serve ads to. The problem I have with Snap is that it appeals to a younger, more self-centered and immature audience. These are precisely the types of consumers that don’t buy things. With the majority of Snap chat users being below the age of 18, advertisers on Snap chat will quickly realize that while their ads may get clicks, the type of people who click their Snap ads are not actually buying anything.
Pharmaceutical drug pricing is all over the mainstream financial media right now. Let’s examine the macroeconomics of what is happening.
The demand for pharmaceutical drugs is inelastic. People that need a pharmaceutical drug prescribed by their doctor will demand that drug regardless of price. As the price of the drug goes up, demand mostly stays the same.
Notice how steep the demand curve is. This steep drop-off represents the inelastic demand for pharmaceutical drugs. The increase in supply from S to S1 leads to a relatively large decline in the price, but not much of an increase in quantity demanded.
Companies like Valeant Pharmaceuticals and former CEO Michael Pearson abused the inelasticity of demand for pharmaceutical drugs for maximum profit. If demand for pharmaceutical drugs is hardly influenced at all by price changes, then raise the price of the drug to a level that maximizes shareholder profits. Sure the supply curve may shift up a little from a drop in demand from people on the margin, but most of the public with their large health insurance providers will pay the higher price.
The horizontal brown line on the supply and demand graph below represents a drug price ceiling.
The lower price of the drug shifts the demand curve up a little to point b. However, suppliers will rapidly stop supplying the drug when they are forced to sell it below market price at point a. The difference between the quantity of the drug demanded and the quantity of the drug supplied is a drug shortage as represented by the red shaded area. People will die from a drug shortage when there are no readily available substitutes, and so the government should not attempt to use price ceilings.
Make Pharmaceutical Drug Demand More Elastic
The way to control runaway drug prices is to make the demand for pharmaceutical drugs more elastic. If people have choices and substitute drugs they can use, the steepness of the demand curve will be flattened and represent a more healthy free market as illustrated below.
Notice that the demand curve is flatter and not so steep.
TEGNA Inc operates 46 television stations that produce local programmings, such as news, sports, and entertainment. The company also operates Cars.com, CareerBuilder, among other digital properties.
TEGNA is the largest independent owner of NBC and CBS affiliates. Profit more than doubled in the most recent quarter because of political advertising. The Wall Street Journal writes…
Chief Executive Gracia Martore said the company expects political revenue to ramp up steadily in the third and fourth quarters as a longer-than-usual primary process led to delayed ad purchases from front-running candidates. She also pointed to “robust advertising from the Olympics this summer driven by our strong NBC footprint.”
TEGNA Stock Chart
The chart shows a beautiful candle over candle reversal that has breached above the speed lines.
I like the stop loss just below $20.82 in case the trade goes south.
Disclosure: I do not hold any stock in TEGNA at the time of publishing this article.