Saturday, October 22, 2016

How do you estimate the competitive effects of hospital mergers?

The answer in a report by two really good economists:

  • An analysis of inpatients’ hospital choices shows that the merged hospitals are each other’s closest competitors. If Wellmont were to close, 75 percent of its patients would go to a Mountain States hospital. Similarly, if Mountain States were to close, 72 percent of its patients would go to a Wellmont facility.
Follow the Merger's progress through the regulatory process at the Johnson City Press

Thursday, October 20, 2016

When do managers care about their competitors' profitability?

When stocks are commonly owned by big institutional shareholders, these big shareholders reward managers for industry performance, rather than individual company performance, as that maximizes the value of their portfolio:
... in industries with high common ownership, top managers receive almost twice as much pay for the good performance of their competitors as managers do in industries with low common ownership. This effect is even more pronounced for CEOs alone. Essentially, CEOs are rewarded more for the good performance of their competitors than they are for the performance of the company they run.

See our earlier blog post on How to decrease industry rivalry.

Wednesday, October 19, 2016

Texas Physicians Threatened by TeleMedicine

It seems that the Texas Medical Board had tried to keep patient care via the Internet from competing with traditional medicine. As reported by the Texas Standard, they required physicians to meet with patients in person before they were allowed to treat them remotely. Since 35 rural Texas counties have no physicians at all, this regulatory entry barrier all but kills the main benefit of telemedicine. Even in urban areas, telemedicine would likely generate serious competition to traditional health care providers.

This requirement primarily affected Teladoc, a company based here in North Texas. But Teledoc sued that the requirement violated antitrust laws and won in lower court. The Texas Medical Board appealed but recently dropped their appeal, perhaps because Teledoc was backed up by the FTC and DOJ. Since the Texas Medical Board is made up of incumbent physicians, this is not unlike the teeth whitening case in North Carolina.

REPOST: sunk-cost fallacy in real estate

Tuesday, August 24, 2010

Sunk-cost fallacy in real estate

In the post below this one, we show that the housing market can have excess supply.  This post shows that it is due to thereluctance of homeowners to sell at a loss, a version of the sunk cost fallacy.

Two homeowners, with identical houses, will list the houses at different prices, depending on what they paid for the house because of what psychologists call "loss aversion." Unfortunately for these loss-averse sellers, buyers don't suffer from similar delusions,
Properties listed above the market price just sat there. In the Boston market over all, sellers listed their properties for an average of 35 percent above the expected sale price, and less than 30 percent of the properties sold in fewer than 180 days. In other words, much of the market went into a deep freeze as many people held out for market prices that no one would reasonably pay.

Note that this reluctance is similar to the  reluctance of businesses to pull the plug.

Tuesday, October 18, 2016

Does zoning causes inequality?

It used to be that there were two ways to make more money:  invest in your human capital (education) or move to a richer state.  WSJ article on how housing has reduced the profitability of the second mechanism:
Moving to a wealthier area in search of job opportunities has historically been a way to promote economic equality, allowing workers to pursue higher-paying jobs elsewhere. But those wage gains lose their appeal if they are eaten up by higher housing costs. The result: More people stay put and lose out on potential higher incomes.
 Land use restrictions are behind the increase in price
The developed residential area in Atlanta, for example, grew by 208% from 1980 to 2010 and real home values grew by 14%. In contrast, in the San Francisco-San Jose area, developed residential land grew by just 30%, while homes values grew by 188%.

Wednesday, October 12, 2016

Tying stock pickers' pay to performance

Steven Cohen is changing how he evaluates and rewards his stock pickers:

Point72 had been paying its stock pickers a fixed 20% bonus on investment returns regardless of how they performed against broader benchmarks. That meant they could be paid handsomely just for matching a rising market. 
Under the new bonus system, Point72 will boost those payouts to as much as 25%, but it will only pay the top bonuses on so-called alpha, industry parlance that roughly translates to investment performance above a market benchmark.

By doing this, he hopes to attract better pickers to his firm (adverse selection). Note that he is measuring excess returns adjusted for the riskiness of the portfolio, i.e., alpha.

Note the link to yesterday's post about how best to tie pay to performance.  By using alpha (risk adjusted return), instead of raw return, Cohen is practicing the "informativeness principle," measuring performance using all information about productivity, including information about risk.

Sterling devaluation and banks


Foreign banks with big servicing centres in the UK — such as Citi’s centre of excellence in Belfast — gain because they pay for those centres in sterling, and they receive more sterling for their home currency when the pound is weak.


The flip side of the cost benefit is that every pound in profit banks earn in the UK is worth less when they repatriate it to their home currencies. US banks generally run their profitable European trading and investment banking businesses from London so the sterling devaluation is a “a drag on revenues from the UK and on pre-tax margins”, according to Brian Kleinhanzl, a New York-based analyst for KBW.

Tuesday, October 11, 2016

Luxury goods and the sterling devaluation

The sterling devaluation is helping British exporters and hurting British consumers.  However, it is also helping British Tourists:

Since Britain voted in June to leave the European Union, sterling has tumbled 17% as of Friday’s close, having set fresh three-decade lows last week. The fall has ratcheted up prices here of imported wine, electronics and even some cars. But most luxury-goods makers—protected by typically fat margins for their products—haven’t yet raised their prices. That has suddenly made the U.K. the least expensive market in the world for a bevy of luxury goods, according to analysts.

HT:  Adam