Beer markets – and Microsoft

My dissatisfaction about the beers that a golf club bar stocks started me thinking about what gives a firm monopoly power in the absence of any apparent reason. Unlike in software there are no apparent network effects, a dominant player has little leverage to bias distribution channels and switching costs for consumers are zero. So how can an inferior product (and I am firmly convinced it is inferior) continue to dominate the market? Continue reading

Closet trackers

Supposedly active fund managers often place a large chunk of the money they are managing in a few large caps, in effect ensuring that their fund’s performance can not deviate too far from the market. Brokers often do, or encourage clients, to do the same.
The reason is supposedly the control of risk, however it is interesting that what is being controlled is not the volatility of the portfolio (i.e. the risk of losing money) but the risk of under performing the market. There are plenty of ways of managing volatility directly so why choose to do it indirectly, and possibly less effectively, by tracking the market? Continue reading

Skyepharma – Paxil manufacturing problems

Skyepharma bounced a little today but it is still well down on two days ago and is at low levels against historical prices – it has rarely gone below 50p since mid-2003 and has gone above 70p several times since then, most recently late last year. Of course it has always been fairly volatile but I was a little surprised at how sharp a reaction there was to the news of Glaxo’s manufacturing problems with Paxil CR.

Firstly, Skyepharma does not manufacture Paxil CR, it helped develop it and receives a (small percentage) royalty which does bring substantial income because Paxil brings Glaxo such huge revenues. On the face of it the effects of the problems should be that Skyepharma loses a fair amount of revenues (all the royalties from Paxil CR’s US sales, i.e. most of it) for about six months and then things slowly go back to normal, by next year everything should be back to normal. This does not look like something that should have much impact on how much Skyepharma is worth. Continue reading