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Circle of Competence Issue #62


"In many capitalist economies in 2018, and especially in our own, innovation is unending, and its pace may even be accelerating. The creative destruction of capitalism gives it a remarkable advantage over other systems. You sometimes have to be willing and able to tear down in order to build up. The old and proven and venerable must sometimes give way to the new and innovative and transformational." - Seth Klarman speech to HBS students, 2018


Teva and other pharma companies headline price collusion case (New York Times)

Google and Amazon are now... competing monopolists? (New York Times)

This week, I wanted to highlight a couple articles that depicted both anti-competitive behavior as well as perfectly capitalistic behavior. Back in week 41 I shared Seth Klarman's speech to Harvard Business School students on the risks to the capitalist system from overly greedy, short term thinkers. Case 1: Teva Pharmaceutical and the price collusion case. These pharma companies knew that generic drug prices would be pressured both from regulatory authorities as well as from the simple fact that generic drugs possess no economic 'moat' like patented/branded drugs do - a double negative for pricing and therefore company revenues. Their response was both potentially illegal and unethical all in the name of shareholder returns. There are plenty of 'natural' or regulated monopolies in the economic jungle (network effects, power utilities, etc.), but when a company deliberately collude on prices which directly harms their consumers, they rightfully deserve to be in hot water. This is a perfect case in point that anti-capitalist proponents will offer up as evidence for the moral depravity and danger of a capitalist system.

Case 2 is a bit more interesting from a capitalist's perspective. We've all heard the case that Google has a monopoly over search and digital ads (not so much now with Facebook's immense ad revenues) and that Amazon has a monopoly over online retail (leading Bezos to pen a love letter to regulators in his 2019 shareholder letter). But what do we make of situations when monopolists... compete? I simply want to point out that in today's world where a tech platform can grow to gargantuan sizes in a decade or less, that competitive forces can take hold just as quickly. Google and Amazon are now beginning to overlap in online retail and digital ads. It is incredible if you really think about it and shows that capitalism's competitive forces are still in play. If the overlap grows to significant portions of these companies' revenues, who benefits but consumers? How will these competitive dynamics play out between these two tech titans? Interesting questions to think about and follow. Given enough time, I truly believe that quasi-monopolists will eventually either 1) die from innovation shocks 2) be regulated or 3) forced to compete with new quasi-monopolists.

Joe Rogan interviews Jamie Metzl on genetic editing, bioethics, and the pressing issues at hand in today's world (Joe Rogan Podcast)

This is a deeply thought provoking episode that involves the collision of biology (how CRISPR and gene editing works), ethics (who gets to decide who gets the benefits and what benefits are off limits?), philosophy (what is good & bad about the technology's potential), and politics (why China has been the first country to alter a baby's genes and not the US). The biggest takeaway from this episode was that the (gene editing) cat is now out of the bag after a Chinese rogue scientist edited a newborn's genes for HIV resistance and now we must deal with the repercussions of what this all means:

- Where will we draw the line with what sorts of gene editing are OK vs. unethical? My first reaction is to support therapeutic uses, but what about genetic enhancements?

- How will we ensure equity between the rich and the poor for access to these technologies over time? This is always a tough question for expensive technologies whose costs will decline exponentially over time.

- What therapeutic uses will be available due to the advancements of gene sequencing and editing? Early cancer detection, genetic defects, etc.


TOP READ: Gates's Law: how compounding effects occur in technological improvement (Farnam Street)

Google and Amazon are now... competing? (New York Times)

GSO capital deep dive - how alternative credit has upended private credit markets and bank financing (Institutional Investor)

Markets are bigger than ever because of consumer connectivity via the internet (Elad Gil)

Bill Gurley, Travis Kalanick's ouster at Uber, reaped one of the biggest returns in VC history (Bloomberg)

The empty promise of data moats (a16z)

Africa just created the largest free trade zone in the world (Axios)


TOP READ: Joe Rogan interviews Jamie Metzl on genetic editing, bioethics, and the pressing issues at hand in today's world (Joe Rogan Podcast)

David Gardner interviews Octagon's founder Phil De Picciotto on the business and future of sports (Rule Breakers Podcast)

Azeem Azhar interviews Duke University's Professor Missy Cummings on all things autonomous vehicles and regulation (Exponential View)

Columbia's Tano Santos interviews Tom Russo of Gardner, Russo, & Gardner on identifying promising consumer brands (Value Investing with Legends)

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