Leaving Las Vegas (if they can)

by on October 4, 2010 at 9:09 am in Data Source, Economics | Permalink

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.

Chris October 4, 2010 at 9:26 am

I doubt that U-Haul wants the same number of trucks at each location. I think you meant to say that U-Haul wants the number of trucks leaving any location to equal the number of trucks arriving at that same location. The total number of trucks at at the location isn’t what’s important. What’s important is the rate of change of the number of trucks, which should be close to zero, so that the number of trucks at the location stays generally constant over time.

Al October 4, 2010 at 9:57 am

@Chris: I originally read “wants the same number of trucks at each one of its locations every day” in the same way you did. This is an ambiguous sentence, it’s not clear that Alex means ‘wants the same number of trucks at the end of the day as at the beginning, at each one of its locations’ rather than ‘ wants the same number of trucks at each and every location every day’

MW October 4, 2010 at 10:20 am

Yeah but now CA -> TX rate is double the TX -> CA rate. I bet this says more about CA than TX.

Laserlight October 4, 2010 at 12:34 pm

Terri, that works out to the same thing.

Jack October 4, 2010 at 12:40 pm

terri,

At some level of price there is an arbitrage between having consumers allocate costs between them, and the expense of hiring a driver.

But since the driver inserts a fairly large set of costs (gas, wages *2 plus bus fare minimum) into a fairly short value chain, and since prices appear to be so transparent, I expect the original point is correct.

I don’t have any evidence beyond this, so could be wrong.

terri October 4, 2010 at 1:03 pm

Laserlight,

I guess I was thrown off by this:

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.

It doesn’t matter how low you make the price if nobody wants to go there. So maybe Las Vegas to LA trips might get an uptick, but eventually the demand will bottom out and drivers will still be hired to make up the difference.

Maybe I just need some more coffee.

Jack October 4, 2010 at 1:21 pm

An allocation of demand based on differential rates provides the lowest combined cost for the three participants X > Y movers, Y > X movers and the moving company.

Any new cost, and the driver is a big one, has to be passed on to one or more of these three. No one has a preference for a truck that was driven by a driver rather than a renter. The renter paying the higher prices would be effectively bidding with the other party to subsidize the return costs (called back haul when this is done commercially).

I do expect that drivers would be employed in extreme conditions, but that differential cost allocation is a more important tool for managing the location of the fleet.

The Unqualified Economist October 4, 2010 at 1:44 pm

I recently moved and when faced with $200+ for a U-Haul, I instead rented two minivans (something like $17.99 each) and just took the middle bucket seats out.

Are there any other incentives/possibilities at play here — say a large intracity city rental market in one place or the other where an excess of trucks would never be a problem due to intracity demand?

Two Things October 4, 2010 at 1:56 pm

U-Haul rentals from Los Angeles to Seattle are double the price of rentals from Seattle to L.A.

So the Las Vegas boom may be over (I’m not surprised, really) but the taxpaying classes are still fleeing California.

Rahul October 4, 2010 at 2:09 pm

@Alex:

Do you know what was the date-sensitivity of those prices? If you had moved the date around was the $$figure substantially different?

Jeremy Miles October 4, 2010 at 2:47 pm

@Brandon Minster: “As I was driving out of the state, I saw caravans of empty moving trucks being driven back into the state for another rental.”

How did you know they were empty?

Ryan October 5, 2010 at 10:10 pm

Interesting data. I think its worth pointing out that you are only looking at a slice of the market for moving between LA and LV–people who rent U-haul to move. U-haul is probably for lower-income individuals/families. It would be interesting if there were similar rate changes for professional movers. It would also be interesting to look at if the price changes based on the size of the vehicle.

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Matthew January 11, 2011 at 7:55 am

I don’t think Las Vegas is a city from where you want to escape.I am sure that if I ever go there I will remain there.I love LAs vegas and the life there.Atleast what I heard about that.moving company

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