Bailout in Greece

After a deal, only more challenges (New York Times): “This is the Europeanization of the Greek debt. Everyone prefers to have Europe as their counterparty rather than Greece.” Perry Mehrling, visiting professor, School of Law, and a senior fellow at the Center for Finance, Law, & Policy.

Rupert Murdoch & News Corp.

News Corp. announces new code of ethics. Will it make a difference? (Christian Science Monitor): “It will be interesting to see what kind of enforcement measures Murdoch and his staff are talking about, and how exactly they intend to put them into action.” Elizabeth Mehren, Professor of Journalism, College of Communication

Rupert Murdoch testifies before Parliament (WGBH-TV “Greater Boston“): “The culture was get the story at all costs and that seemed to have just permeated to every level. It’s really unfathomable that the top editor wouldn’t have had at some point asked the question of how are you getting this.” Tom Fiedler, Dean of the College of Communication

News Corp. board should be replaced (Bloomberg Television): “There’s no question the Murdochs are key people because nothing is going to happen without their approval but beyond that I think the independent directors hold the key.” James Post, Professor of Management, School of Management

Murdoch struggles for control as scandal grows (Bloomberg): “The shell of invulnerability that Rupert Murdoch had around him has cracked. His credibility and the company’s credibility are hemorrhaging.” James Post, Professor of Management, School of Management

Murdoch scandal coming to U.S.? (WBZ-TV): “The scandal could potentially place at risk Murdoch’s ownership of TV stations in 18 U.S. cities, including Boston.” Tobe Berkovitz, Associate Professor of Advertising, College of Communication

Japan women win World Cup

Japan’s character seen in women’s World Cup victory (CNN.com): “The women’s performance illustrated some key qualities of Japanese society: hard work and resilience. It wasn’t only skills that got them close…It’s the effort that counts. The women were jubilant that they’d gotten that far. They believe in will, showing when we put our minds to something, we can do it.” Merry White, Professor of Anthropology, College of Arts & Sciences

Possible MA Senate run by Elizabeth Warren

Senate run not off the table for Warren (Washington Post): “Warren’s name recognition might not carry to her home state. You guys in Washington know her very well. But I’m wondering whether or not the rank-and-file vote…is going to be aware of who she is.” Fred Bayles, Associate Professor of Journalism, College of Communication

Elizabeth Warren may be ‘wild card’ in senate race (Boston Herald): “Politics is about getting even. That would be something to see.” Tom Whalen, Associate Professor of Social Science, College of General Studies

Contact James Post at 617-353-4162, jepost@bu.edu

“As Congress and the President debate Medicare’s future, the new prescription drug benefit in Medicare has been getting lots of attention. Known as Part D, the new benefit is different from the rest of Medicare because it allows seniors to choose their own prescription drug insurance plan from private companies in a regulated market.

“Part D has cost less then expected and seems a success story. Advocates of market-based Medicare reforms, such as Representative Paul Ryan, argue that Part D’s success was due to choice and competition. They assume that competition will continue to keep costs down. But the history of Part D should give them pause.

“One company, Humana, took the Part D market by storm. Humana recognized that while seniors would be very price sensitive when they initially picked their plans, they would be less willing to switch plans later on. And so Humana set extremely low prices in 2006, Part D’s first year: about $10 per month on average for the basic product. This was substantially below the market’s average of about $30. This strategy was a big success: Humana acquired a dominant position in the market. It then quickly increased its premiums. By 2010, the average premium for a Humana basic plan was over 200% higher than in 2006.

“The experience of Humana shows that what looks like cost-containment in the Part D market is partially due to insurance companies offering what amounts to introductory, or “teaser,” pricing. Things look good early on, when companies set prices low to attract customers. But these low prices are transitory. Companies will raise prices later, once they’ve acquired a base of customers who won’t switch away. We’ve all seen free trial offers for magazine subscriptions, but we don’t expect them to stay free forever. The pattern in Part D is more subtle, but it is still there. My research shows that while Humana is an extreme case, we see teaser pricing throughout the Part D market. Plans that have been around for five years cost about 10% more than newly introduced plans. (This analysis takes into account regulatory changes to Part D, changes in drug prices, and differences in the characteristics of plans.)

“Why don’t people just switch to cheaper plans when companies raise prices? Even though enrollees are allowed to switch plans each year, they are typically reluctant to do so. Switching is time consuming, and the decision process is grueling. When seniors were picking their initial plans, newspapers were filled with stories of confused seniors wading through their options. Who wants to go through that again? Plus enrollees have more to lose if they switch plans as time goes on – they’re learning more about how their plan works and choosing drugs that are covered by their plan, but not necessarily covered by alternative plans.

“We should expect to see teaser pricing in other markets as well, including the state-based health insurance exchanges planned by the recent federal health reform (PPACA). Though teaser pricing has been criticized as “bait and switch,” it is not the result of a few unscrupulous companies. Nor is it an anomaly of the Medicare Part D market. Companies are responding to the incentives they face. They simply have less to lose in later years if they raise prices, since their customers are less likely to switch. When markets are first set up and many people are making an active choice, we should expect to see lower than average costs. But price increases will soon follow.

“It’s true that Medicare Part D has cost less than predicted. But it’s too early to know whether these low costs are the beneficial result of competition, or a sophisticated marketing strategy in which companies offer seniors low prices now in exchange for high prices in the future. We’ve already seen price increases – in some cases, large ones. Competition and choice have benefits, but need to be judged on their long-term cost, not just today’s good deal.”

Contact Keith M. Marzilli Ericson, kericson@bu.edu

“I think it is the beginning of the new tech bubble focused on social (professional) networks. We are in the early stages of social commerce and the monetization logics are still fuzzy.

“The only logical explanation is short-term speculation, but these valuations are likely to go down very, very soon. I can only imagine the frenzy when Twitter and Groupon go public, not to mention Facebook or Zynga.”

Contact Venkatraman at 617-353-7117, venkat@bu.edu, Twitter @nvenkatraman

Susan Fournier is an associate professor of marketing and an expert in brands and brand strategies. She can be reached at 617-353-2773, fournism@bu.edu

Frederic Brunel is an associate professor of marketing and an expert in brand & product management and consumer behavior & decision-making processes. He can be reached at 617-353-4609, brunel@bu.edu

“At a time when everyone is rushing to buy gold it might be a good time to question such herd behavior. Investors take heed: gold price cannot climb to the clouds. It is at the late bubble stage and will soon pop. Gold bulls have enjoyed a decade-long ride, but as the economy moves from economic chaos to economic prosperity, the glitter of gold will fade.

“Investor obsession with exchange-traded gold funds (ETFs) has also created a false sense of liquidity and stability. ETFs have not been bear-market tested. Since 2004, when gold ETF’s were first concocted, over $60 billion has poured in, fueling higher gold prices. What is not understood is what effect ETFs will have on gold prices when global markets return to economic prosperity.

“As more investors want out than in, will ETFs become a giant wrecking ball? In 1980, during the last gold bubble, gold prices plummeted 60 percent in one year. That was before the advent of ETFs. Could the same derivative instruments that pumped gold prices up do the most destruction to gold prices?

“Using the last gold bubble as a guide, current gold per ounce could drop by $800 or more. Smart investors should get out of gold and take their money and run.”

Contact Mark Williams, 617-358-2789, williams@bu.edu

This is the first installment of a continuing series on gas prices.

“Valuations are increasing because of the perceived increase in growth among both CEOs and economists.

“The key parameter in determining an appropriate multiple for an acquisition is the anticipated growth rate of the target’s cash flows. At this point in the business cycle, that value has grown significantly from the values apparent at the depths of the recession.

“I would expect those values to continue to increase, before falling back to more sustainable levels.”

Contact Allen Michel, 617-353-4167, amichel@bu.edu

Michael Salinger, School of Management Professor/Everett W. Lord Distinguished Faculty Scholar, Markets, Public Policy and Law; Expert in industrial economics; Former Director of the Bureau of Economics at the U.S. Federal Trade Commission; Recently quoted in the Boston Herald – “Rising food and gas prices a real downer”

Contact 617-353-4408, salinger@bu.edu

Adil Najam, Director of the Frederick S. Pardee Center for the Longer-Range Future; Expert in Middle East politics, developing countries

Contact 617-358-4002, anajam@bu.edu, Twitter: @adilnajam

Contact N. Venkat Venkatraman, 617-353-7117, venkat@bu.edu, Twitter: @nvenkatraman