Kurt Johnson

I’m having a blast so far. I spent first few days in Mumbai/Bombay and flew to Bangalore last night. There are many photos to post and stories to share but I don’t have a PC with me so will not start on anything until I’m back in Philadelphia January 9. The spring term starts the day after I arrive and interviews will only be 2-3 weeks away so nothing is likely to get done quickly.

Happy holidays!

Now you can go skiing, indoors, in a city where the year-round average high temperature is 90 degrees.

Initially I figured this was a surefire money loser due to the electricity required to cool the building so far below ambient temperatures and create snow. Additionally there are presumably significant costs for freshwater; I know the UAE is building desalination plants which usually have costs for freshwater around 10x what we see in the US (i.e., in the US wholesale desalination cost might be $3000+/acre foot vs $~400/acre foot retail). Finally, the project should have to clear return hurdles on $275mm of invested capital.

This might still be a profitable project however - electricity in Dubai is cheap due to inexpensive fossil fuel sources and subsidies for commercial businesses ($0.04/kwh retail vs $0.07/kwh cost). Presumably water is similarly subsidized and the capital hurdles might be a lot lower than I originally thought since strict Islamic investors might choose not to collect interest (or the recent surplus capital in the region + a preference for domestic investing may have pushed yields very low; witness the quadrupling of local stock markets in the last 2 years).

Finally, if the ski project collects $35 per person at 100% utilization (2-3 shifts of 1500 people per day) actually brings in a decent amount of revenue. So maybe this thing does make sense as long as the market distortions/subsidies for inputs continue….

Yesterday I had a moment straight from the Wharton recruiting book. I spent a few minutes of my lunch break chatting with the officer in charge of corporate planning/strategy for the most profitable company in the world while we waited for the Chairman of the Joint Chiefs of Staff to finish his guest lecture and vacate the classroom we were scheduled to use.

Wharton doesn’t need any more people bragging on it but it was a kind of surreal moment for me.

Photo: TSgt. Sean P. Houlihan. From http://www.jcs.mil

Today’s WSJ talks about a pricing strategy for high cost drugs:

Ms. Oliva, who earns about $40,000 a year managing a clothing store in Long Beach Island, N.J., pulled out her American Express card that day in September and paid, unsure where she was going to find the money for the next week’s supply. Fortunately, the nurse at her doctor’s office found help for her from a charity, Patient Services Inc., which picked up her drug co-payments — $3,800 for a six-week course of treatment.

The twist: The money for her co-payments came from Schering-Plough Corp., the drug’s maker.

To cope with rising medical costs, insurers are requiring patients to pay higher premiums and co-payments for drugs. While poor uninsured patients can often get expensive medicine free from drug companies, people with insurance are increasingly finding it difficult to afford these drugs. In response, drug companies are giving money to charities that are specifically set up to help patients pay such costs.

Under this support system, drug-company money keeps patients insured — and keeps insurers paying for the high-priced medicine.

“It’s a win-win situation,” says Dana Kuhn, co-founder and president of Patient Services, a Midlothian, Va., charity, which solicits money from drug companies. “Patients are helped and companies are helped. They make a small contribution to help the patient and get much more money back when the insurer pays for the drug.

On the surface this sounds a lot like the price discrimination that colleges and universities employ - set a very high nominal price but discount liberally for individuals who prove they cannot afford to pay full price. Drug manufacturers are utilizing insurance companies to create more revenue (i.e., keep end-user prices affordable and collect incremental revenue from insurers) whereas universities utilize government aid and private scholarships. I’ve written about this before.

Philip Greenspun wrote about this years ago:

Suppose you got a brochure from United Airlines listing the fare from Boston to San Francisco as $1 million. However, the brochure stated that “because of our commitment at United Airlines to ensuring that every American gets the transportation that is his birthright, we offer financial aid.” The brochure comes with forms in which you list every scrap of money that you have. You are instructed to send this into United Airlines along with a certified copy of your tax returns so that they can evaluate your need. A few days later, United Airlines writes back: “Great news. We have evaluated your financial situation and have determined that if we take more than $1,000 out of you, you’ll be reduced to the homeless shelter. So we’re awarding you $999,000 in financial aid and you only have to give us $1,000 to fly from Boston to San Francisco.

His whole article on higher education is here but it has some graphics in it that may not be safe for work.