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Buffett Will Steer Investors to Airbnb to Avoid Price-Gouging by Omaha Hotels
for BRK's annual shareholder meeting
- dangerlibrary 13y agoI wonder how long it will take for some of these investors to buy cheap apartments in downtown Omaha and charge $350 a night during the meeting.
- ninv 13y ago3 nights X 350 = 1050$, it will take 100+ years to recover the cost
- baddox 13y agoDon't forget property tax, and other fixed yearly costs that don't go away when the apartment is unused.
- FireBeyond 13y agoBecause they couldn't rent it out or AirBnB it the other 362 days of the year?
- ninv 13y agoHow many people are going to Omaha for vacation?
- brianbreslin 13y agoI know someone who bought a house in Austin to rent out on Airbnb during sxsw. He rents it out 3/4 of the year but makes most of his profit that 2 week period
- afterburner 13y agoThat's literally not saying anything all other than he's at least breaking even, and those extra 2 weeks make at least $1 profit.
- scott_karana 13y agoAnd if he's only breaking even, isn't that okay? If he gains net $0 from it, and spends net $0, he'll (eventually) have a land asset. Illiquid and potentially risky, but still. Getting a mortgage paid for you is a nice deal.
- pilom 13y agoOr, he could take the down payment he put on the place and invest that and come out ahead. Granted this person probably does make more than $1, but if they didn't, there are other better uses for money.
- rottyguy 13y agoInteresting the supply/demand in the extreme is considered Price-Gouging. What should we call Gillette's pricing on razors?
- 27182818284 13y ago>What should we call Gillette's pricing on razors? Razor blade pricing? This is what I grew up with it being called slangly. As in, give away something up front and then gauge huge on the backend. Another example would be that He-man toy that had crazy-expensive slime refills. shrug
- RickS 13y agoJust FYI, that's called a loss leader. Printer ink is the classic example. http://en.wikipedia.org/wiki/Loss_leader http://en.wikipedia.org/wiki/Loss_leader
- georgemcbay 13y ago"What should we call Gillette's pricing on razors?" A triumph of marketing since you can get as good or better razors from companies like Dorco for a fraction of the price.
- ghaff 13y agoAlso interesting is that the oft-quoted example of giving away the razors and making money on the blades is apparently more complicated in Gillette's case than the shorthand version suggests: http://www.law.uchicago.edu/faculty/research/randal-c-picker-razors-and-blades-myths http://www.law.uchicago.edu/faculty/research/randal-c-picker...
- thoughtpalette 13y agoYou can always switch to a DE merkur if you have the time. .05c a blade. Awesome experience. /r/wicked_edge
- humanrebar 13y agoIt seems odd that Buffett and the WSJ would call this price gouging. There are high prices brought about by low supply and high demand. Sounds like Econ 101 to me. Am I missing something?
- mullingitover 13y agoThe fact that they can get a better deal on AirBnB reveals that the market is not as supply-constrained as the hotels would like us to believe.
- te_chris 13y agoA better deal for an unlicensed premises.
- scott_s 13y agoExcept that that is adding supply that didn't exist before - before AirBnB was popular, there was no reliable way to exploit it. And while AirBnB is competition, it's not the same thing as a hotel room. My point is that I don't think there's anything nefarious going on. Demand is high, so the hotels raise their rates. And the high demand is predictable because it's due to a scheduled event. Presumably, the existence of AirBnB will cause the rates to go down somewhat.
- digikata 13y agoAn Econ 101 model of the world breaks down in many ways - this is one of them. If the supply is not in doubt, but the hotels all raise the prices collectively knowing that the investor meeting is being held, it could be interpreted casually as price gouging. The situation is like a prisoners dilemma for hotels. If they all raise prices and none of them break rank in price, then they all make more money. BTW, just by pointing out the option of Airbnb, Buffet makes it more likely for a given hotel to break rank in a collective price bump. Another way for Buffet to break gouging might be to publicly announce the price spikes as something driving consideration of future alternates for his meeting. But his past behavior makes that unlikely given that he would likely have to shift to areas with larger travel markets so as not to be a large percentage of the existing travel capacity of the locale.
- oh_sigh 13y agoI wonder if Buffett would invest in a business which didn't increase their prices when they knew demand was going to spike.
- 3825 13y agoWarren Buffett has said Amazon.com founder Jeff Bezos is a great businessman[0]. It is worth reiterating what Jeff Bezos thinks about price gouging: “There are two kinds of companies: those that try to charge more and those that work to charge less. We will be the second.” Perhaps you will argue that increasing the storage cost for fulfillment by Amazon[1] is an example of price gouging. I will let smarter people answer why it is OK for Amazon.com to charge more during the holiday shopping season. I'd imagine the simple reason is greater volume of transactions. However, with the way Amazon.com does storage, a 33% hike looks strange. [0] “He’s a great businessman and a good guy, too.” http://blogs.marketwatch.com/thetell/2013/09/20/offering-tips-at-georgetown-buffett-tips-cap-to-amazons-bezos/ http://blogs.marketwatch.com/thetell/2013/09/20/offering-tip... [1] Currently $0.48 per cubic foot per month Jan-Oct and $0.64 for Nov-Dec. http://services.amazon.com/fulfillment-by-amazon/pricing.htm http://services.amazon.com/fulfillment-by-amazon/pricing.htm
- celticninja 13y agocould this be linked to the fact that amazon needs a lot more storage for its own uses in november and december to hold all the extra product they will shift in the run up to xmas, hence the price increases because this is more in line with what they would be paying elsewhere.
- PhasmaFelis 13y agoIt's depressing but not hugely surprising to find that the comment thread is mostly people defending price-gouging. I've just spent a while trying to come up with an argument against, but really it comes down to whether your personal values prioritize cash flow over being decent to people, and that's not something I can talk anyone out of in a web post.
- grannyg00se 13y agoIsn't that part of a general problem with corporations? It's almost a requirement to prioritize cash flow over being decent to people.
- dragonwriter 13y agoNo, that's a problem with firms where the voting power is distributed among people whose only shared interest is making money. The corporate form is pretty much tangential to this, relevant only in that that form is often attractive to widely held (in terms of equity distribution) firms regardless of distribution of authority, and the more widely distributed authority is (which often roughly parallels equity distribution), the more likely that the only shared interest (or at least, the most salient shared interest) is financial profit. But, conceptually, you can get the same issue with big partnerships, LLCs, etc. -- or even small (in number of partners/members) ones and sole proprietorships, where that's all the partners/members/owners care about.
- PhasmaFelis 13y agoYeah, pretty much. There's an interesting observation about audience selection in here somewhere. Your typical hacker tends towards progressive politics and attitudes, and would be likely to condemn price gouging. "Hacker News," though, is associated with Y-Combinator and disproportionately attracts the Valley-startup/venture-capital/exit-strategy subset of hackers, who tend a lot more towards Objectivist-libertarian profit-obsession, so you get what you see here.
- lotsofpulp 13y agoExcept that price gouging commonly refers to taking advantage of people in duress. Voluntarily going to Omaha for a convention and finding that hotel room prices are higher due to higher demand is not duress. Are hotels not supposed to increase nightly rates when there is increased demand? Should hotels in Manhattan sell their rooms for the same price as those in Omaha? There is no "hotel lobby" that's pushing to outlaw selling your own residence on AirBnB. However, it's usually illegal because of the liabilities and disturbances a transient crowd can cause for people living around them, and it's the people that want these restrictions.
- yoloswagins 13y agoThis gives me an idea. Contact house/apartment landlords in Omaha about a month before the meeting, and offer to set up an airbnb in their empty units. The vacancy rate of rental housing in Omaha is about 9%, so Landlords would be interested.
- mikemac 13y agoSeems like once you rent and move enough beds, linens, tables, chairs, etc you'd have cut into your profit margin significantly.
- yoloswagins 13y agoHigh end hotels will buy new furnishings every 18-24 months. The used furnishings are bought by Hotel Furniture Liquidators (HFL) who sell the furniture to mid-tier hotels. Working with the resellers to rent a dozen rooms of furniture should keep costs down.
- not_paul_graham 13y agoRegardless, this seems like a huge PR win for Airbnb given the recent news about crackdowns in SF/NYC. Kudos to them and best of luck!
- davidf18 13y agoMr. Buffett should just move his shareholder's meeting to a city with many more hotel rooms such as Las Vegas, Chicago or Orlando which has a far greater supply of hotel rooms than Omaha and also has far more accessible flights.
- deleted 13y ago[deleted]
- daned 13y agoI imagine Airbnb units will raise prices as well, as happened when I tried to book Airbnb in New Orleans without realizing it was Mardi Gras.