Occupational Demand in Boom Towns

The oil boom in North Dakota is big. It is drawing labor, disproportionately young men, into a sparsely populated area and paying them a lot of money. As the New York Times reports:

The rich shale oil formation deep below the rolling pastures here has attracted droves of young men to work the labor-intensive jobs that get the wells flowing and often generate six-figure salaries.

How many young men? "In 2011, nearly 58 percent of North Dakota’s unmarried 18-to-34-year-olds were men, according to census data." What well-paid, single, young men demand is women. This has caused problems but also opportunities.

Some women have banked on the female shortage. Williston’s two strip clubs attract dancers from around the country. Prostitutes from out of state troll the bars.

Natasha, 31, an escort and stripper from Las Vegas, is currently on her second stint here after hearing how much money strippers made in Williston on a CNN report last year. Business in her industry is much better here than in the rest of the country, she said. She makes at least $500 a night, but more often she exceeds $1,000.

“We make a lot of money because there’s a lot of lonely guys,” she said.

It may also be a good place to open an STD clinic.

The Scandinavian Model

We have blogged about the Scandinavian success stories before (Grow a pony tail and cut taxes,
Now that we have a European style welfare state, lets learn how to run it efficiently,

What can we learn from Chile, Sweden, and Hungary?, What can we learn from Sweden?)

The Economist has an update on how well the Scandinavian model is working. 

 Government’s share of GDP in Sweden, which has dropped by around 18 percentage points, is lower than France’s and could soon be lower than Britain’s. Taxes have been cut: the corporate rate is 22%, far lower than America’s. The Nordics have focused on balancing the books. While Mr Obama and Congress dither over entitlement reform, Sweden has reformed its pension system (see Free exchange). Its budget deficit is 0.3% of GDP; America’s is 7%.

On public services the Nordics have been similarly pragmatic. So long as public services work, they do not mind who provides them. Denmark and Norway allow private firms to run public hospitals. Sweden has a universal system of school vouchers, with private for-profit schools competing with public schools. Denmark also has vouchers—but ones that you can top up. When it comes to choice, Milton Friedman would be more at home in Stockholm than in Washington, DC.

All Western politicians claim to promote transparency and technology. The Nordics can do so with more justification than most. The performance of all schools and hospitals is measured. Governments are forced to operate in the harsh light of day: Sweden gives everyone access to official records. Politicians are vilified if they get off their bicycles and into official limousines. The home of Skype and Spotify is also a leader in e-government: you can pay your taxes with an SMS message.

MPs on Multi-National Transfer Pricing

UK tax law is ambiguous enough that there is latitude for firms to realize more of their profits in low tax rate jurisdictions rather than higher tax rate UK.  Accounting firms are more than happy to offer advice on how to get it done. MP Margaret Hodge appears surprised that a firm would follow an accounting strategy that nets it higher profits.

She pointed to one example where PwC advised a firm to spread its offices through the Cayman Islands, Jersey, Luxembourg and Switzerland.

It appears she doesn't quite get what motivates firms.

"What really depresses me is you could contribute so much to society and the public good and you all choose to focus on working in an area which reduces the available resources for us to build schools, hospitals, infrastructure."

Auditors appear to be saying, "stop us before we avoid taxes again".

The UK head of tax at Ernst &Young, the accountancy firm that audits Google, Amazon and Facebook, has admitted that international guidelines that allow online firms to pay much lower corporation tax than their rivals are outdated and in need of urgent reform.

John Dixon told a committee of MPs that the Organisation for Economic Co-operation and Development (OECD), which drafts the politically contentious rules, was facing a "difficulty … [it] needs to address" because the codes established decades ago never envisaged an explosion in online commerce.

Suppose the law is changed so that accounting firms have little ability to realize profits in low tax rate jurisdiction. A prediction would be less vertical integration by firms.

Possible Patronage in Bid-Rigging

One USAID official is on his way out the door and another is alleged to collude with him on a contract for services that was "wired" for him to win the contract. The US News story from the AP deals mostly about legal wrangling over whether the DOJ has jurisdiction to investigate but the chief allegation is:

In an inspector general's "memorandum of interview" last June, investigators described their probe into allegations that "Lisa Gomer, general counsel for USAID colluded with David Ostermeyer, chief financial officer for USAID, by working with him to write a scope of work for a personal service contract ... in the Office of General Counsel." 

"Gomer planned to select Ostermeyer for the position," the memo said.

Governments are often the victim of bid-rigging in auctions because managers face few consequences for possible under-performance by the contractor.

Shopping for surgery

UK's LTE Spectrum Auction Strategy

The UK is releasing auctioning off spectrum for 4G LTE services to be offered there. Journalists want to know how the auction is progressing. But the story by David Gilbert of IBT indicates that the UK's Ofcom knows how to run an auction:

Ofcom has said that no information about how the process is going until it ends. "Due to the nature of the auction, it is important that information about the bids being placed remains confidential until the auction concludes to reduce any potential risk of strategic bidding which could distort the outcome of the auction."

Movie Streaming is Complementary with ...

Netflix's business model is to make money from movie rentals, and increasingly, rentals of movie streaming. Amazon prime also offers movie streaming but this is a sideline from its larger online services. Amazon prime is willing operate movie streaming as a loss-leader and make up the losses on the increased demand for complementary services. As Alexander Mizan points out:

Amazon is aggressively trying to set up exclusive content deals and is willing to pay more for them than NFLX, as the EPIX deal showed lately. Unlike NFLX that relies on streaming to make a living, Amazon's model for Prime is that of a loss leader, making up the difference in more retail sales. Granted, NFLX has a first-mover advantage in the business but AMZN has a bigger bank. It will be an interesting race. Another formidable competitor in streaming is Hulu, which is partly owned by Disney, NBCUniversal and Fox. Although rather small still, it's offering streaming service at the same price point as NFLX and (being owned by the studios themselves), it has a higher potential for quality programming.

Are these complementary relationships strong enough to undermine the stand alone streaming business model? 

Sports and/or Cooking Shows

Skip Saur points out that the dominant TV genre is sport broadcasting. He then explains why viewers of Top Chef are not (necessarily) subsidizing sports.

Cable TV offerings are common examples of product bundling and are much maligned and misunderstood by journalists and lawyers alike. The main policy issue is whether viewers of one genre of programming should have to pay for the programming she does not view.

Students of Managerial Economics know that bundling is profitable when it increases demand (adds value). For example, the costs of producing Top Chef are little different if there are 1,000 or 1,000,000 viewers. Bundling it with sports means that it survives on viewership more like the latter than the former. What would cost $1,000 per viewer a la carte, costs only $1 per viewer in the bundle. A la carte prices are set according to the value from the marginal consumer of a network which can be high for a few. Bundle prices are set according to the marginal network for all viewers which can be low for many. No show or genre is subsidizing any other. It is because most viewers place at least some small value on the option of viewing other genres that they are more willing to buy the bundle than networks one-by-one. The number of paying viewers rises with the bundle and so the price per show falls.

A Regulated Price Floor

A supermarket's temporary price change is deemed illegal because prices are too low. Fresh Markets had a promotional offering of a gallon of milk for $2.99 but the State Agriculture and Forestry received a complaint and audited the store.

“They can sell it six percent over cost all day long. It’s when they sell it below cost that it becomes a problem,” State Agriculture and Forestry Commissioner Mike Strain told The Advocate.

And just what problem would that be? The buyer likes lower prices. The seller likes offering 'loss-leaders' every so often. The only ones harmed might be competitors or suppliers. Since competitors prefer softer competition they desire a government enforced cartel. Likewise, fiercer downstream  (supermarket) competition may serve to put downward pressure on upstream (dairy) wholesale prices. If this is the case, it would be yet another example of food producers getting special treatment from the government.

Hat tip: Craig Depken

Auto Alliance Cost Svaings

Economies of scope in products are often the result of economies of scale in producing a common  component. Case in point is the alliance between GM and PSA Peugeot Citeroen. They will be collaborating on a number of models. Some models marketed by both will based on a platform developed by one.

The two firms will also collaborate on further improvements to PSA Peugeot Citroen's EB three-cylinder petrol engine used in the 208, and have signed a definitive deal for joint purchasing that should bring better economies of scale for PSA and GM brands.