Audit Notes: Rocket Internet, Gas Taxes, The Price of Health Care

Bloomberg BusinessWeek has a good story on a German company that makes its living ripping off American websites and taking them overseas before the Americans can get there.

Rocket Internet, owned by three German brothers, has copied eBay,, Groupon, and Facebook, and more—sometimes down to the font and the style of furniture displayed on the homepage. The proprietors are unabashed.

Groupon ended up buying out Rocket’s knockoff:

At this year’s DLD conference in Munich, Groupon CEO Andrew Mason praised the Samwers: “What people have to realize is the idea is the easy part, and that execution is the hard part, and Marc and Oli are the best operators I’ve ever seen in my life—they’re just inhuman,” he said…

Oliver, who sets the pace and tone of the Samwer empire, once described Rocket Internet as “McKinsey on steroids.” He was referring to his company’s international network, but he could just as well have been talking about its corporate culture. Rocket’s employees work long hours—often from 9 a.m. to 11 p.m. One former high-ranking employee, who says he left the company in part because of a climate of aggression, recalls seeing a list of international managing directors accompanied by a note that read, “Keep this list updated and check it regularly because fluctuation should be around 5 percent every month.”

And Mason meant “inhuman” as a compliment.

— Mark Thoma points to research from MIT professor Christopher Knittel on gas taxes, the cost of which he says would be offset by other gains. He says seventy percent of the economic cost of a dollar-a-gallon tax would be recouped from health savings.

And this is some interesting data:

One of his papers, “Automobiles on Steroids,” recently published in the American Economic Review, examines technological progress in the auto industry. From 1980 through 2006, the fuel efficiency of America’s vehicles has increased by just 15 percent — at first glance, a lethargic rate of improvement. But as Knittel points out, cars’ average horsepower has roughly doubled since then, and average curb weight of those vehicles rose 26 percent during that time. Adjusting for these changes, fuel economy has actually increased by 60 percent since 1980, but as Knittel observes, “most of that technological progress has gone into [compensating for] weight and horsepower”…

The researchers found that with each $1 rise in the price of gas, purchases of highly fuel-efficient autos increase 21 percent, while purchases of gas-guzzling vehicles drop 27 percent.

— Ezra Klein writes that “We spend less time in the hospital than Germans and see the doctor less often than the Canadians.” We spend nearly twice as much per person on our health care than they do because our prices are vastly higher

“In my view, health is a business in the United States in quite a different way than it is elsewhere,” says Tom Sackville, who served in Margaret Thatcher’s government and now directs the IFHP. “It’s very much something people make money out of. There isn’t too much embarrassment about that compared to Europe and elsewhere.”

The result is that, unlike in other countries, sellers of health-care services in America have considerable power to set prices, and so they set them quite high. Two of the five most profitable industries in the United States — the pharmaceuticals industry and the medical device industry — sell health care. With margins of almost 20 percent, they beat out even the financial sector for sheer profitability.

The players sitting across the table from them — the health insurers — are not so profitable. In 2009, their profit margins were a mere 2.2 percent. That’s a signal that the sellers have the upper hand over the buyers.

Kevin Drum notes that Switzerland, whose health-care system most closely resembles our own, pays the second-highest prices.

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at Follow him on Twitter at @ryanchittum. Tags: , , , ,