Results for “uhaul”
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UHaul Pricing and Free Drinks for Women Nite

Here is my analysis of UHaul pricing and the larger implications for not only ‘women drink free nites’ but many other markets.

Why is it so more expensive to rent a UHaul van to travel from  LA to Las Vegas ($454) than from Vegas to LA ($119) (more here).  Since the direct cost is similar the first thing an economist might think of is price discrimination.  But the rental market is highly competitive, especially when we take into account substitutes such as train, private car etc., so that seems like a non-starter.  A good answer needs to recognize that UHaul operates a network with significant inter-customer externalities.

Let us suppose that as the day dawns UHaul has the optimal number of trucks at each of its locations.  At the end of the day, UHaul would like the same number of trucks at each of its locations.  But this is possible only if departures equal arrivals and to help achieve that balance UHaul lowers the price on the low demand Vegas to LA trip and raises it on the high demand Vegas to LA trip.  (It’s more complicated than this because there are many more than bi-directional considerations but you get the idea.)

Put differently, a customer who travels from Las Vegas to LA reduces the cost to UHaul of running its network because it lets UHaul sell an LA to Las Vegas trip.  The direct costs may be similar but the indirect costs related to running the network are very different. UHaul’s pricing strategy reflects both the direct and indirect costs.

Network economics has some similarities to platform economics.  A bar, for example, is a platform which mediates transactions (pecuniary and non-pecuniary!) between two sorts of customers, men and women.  If men have a higher demand for going to a bar with many women (LA to Las Vegas) than women have of going to a bar with many men (Las Vegas to LA) then in a competitive market the bar must set a higher price for men than for women.  In this context, far from being an example of monopoly power, differential pricing is a result of competition.

More generally, there are many examples of platform markets.  The developer of a mall has as customers shoppers and shops.  A video game console sells itself to players and programmers.  A credit card must have users and merchants.  In some places differential pricing for men and women at nightclubs is illegal.  But in a platform market such differential pricing can make both men and women better off.  Similar things can be said about practices in other platform markets which look anti-competitive at first glance but in fact are the result of competition in the context of a platform.

More on platform economics, also called two-sided markets, in Rochet and Tirole.

Bonus points to Larry White, Mark Weaver and Michael Stack for sending in answers and double bonus points to Larry for suggesting that some of theory could be tested by looking at drink pricing at gay bars.

UHaul 2

Inspired by my earlier post, Chris Robinson has written some clever code to query UHaul prices which he then analyzes.  Also, like a true statistical gentleman, he makes the data available to all.

Steve Levitt chimes in on whether this is freaky enough – no, it’s encouraging. but not quite there yet.

Me?  I am still hoping that someone will follow up on my suggestion that these prices explain why women drink free nights are a good idea.

UHaul Pricing

I’m not convinced by his example but Andrew Roth (a former student of mine) has a found a nice source of data that could be used to discuss demand and supply, the difficulties of identifying price discrimination, and why it’s efficient to have "women enter free" nights at clubs. 

Some high income earners are leaving
California because of its punitive tax rates. Could low- and
middle-income workers be leaving as well? One crude measure is to
examine the one-way rental rates for U-Haul vans. Using U-Haul’s website, I queried a one-way rental for a 10-foot van for October 1st, 2005.

   

   

   

   

   

   

One-Way Trip Price
Los Angeles to Las Vegas $454.00
Las Vegas to Los Angeles $119.00

Hattip to E. Frank Stephenson at Division of Labor.

Leaving Las Vegas (if they can)

In 2005 I presented figures on U-Haul pricing (via Andy Roth) between Los Angeles and Las Vegas. At that time it was much more expensive to rent a truck to go from Los Angeles to Las Vegas than from Las Vegas to Los Angeles. 

One-Way Trip (August 2005) Price
Los Angeles to Las Vegas $454.00
Las Vegas to Los Angeles $119.00

Since the distance is the same the difference is price was likely due to the fact that more people wanted to escape LA than leave Las Vegas. The key idea is to recognize that as an ideal U-Haul wants the number of trucks at each one of its locations to be the same every day. Thus, U-Haul must choose prices on all of its links so that at the end of the day the same number of trucks come into Los Angeles as leave.  One way of doing this is reducing the price on Las Vegas to Los Angeles trips.

Ok, so what are prices today?

One-Way Trip (October 2010) Price
Los Angeles to Las Vegas $223.00
Las Vegas to Los Angeles $234.00

Prices have halved on the LA to Las Vegas trip and doubled on Las Vegas to LA. Yup, the Las Vegas boom is over.  

As I said in my earlier post, U-Haul pricing is an interesting way of talking about "demand and supply, the difficulties of identifying price discrimination, and why it's efficient to have "women enter free" nights at clubs."  I leave the latter as an exercise.

Here is Tyler on Not Leaving Las Vegas.