Blogs | September 5, 2018

Paying a “fair” price to park your car

Working out how to charge for using scarce resources can be an economic and ethical challenge, writes Jenny Robinson.

It’s a commuter’s nightmare. You drive to your destination, arriving with a little bit of time to spare, enough to grab a coffee before you catch your train or start work. You might be feeling pretty smug – no rushing for me, no sir!

Then you start to experience that sinking feeling as you slowly cruise around the car park. You’re getting further and further from the entrance, but where are the spaces? Where have all these people come from?

Suddenly you’re rushing around trying to find somewhere else to park, knowing it’s only a matter of time before you’re going to be making humble apologies to everyone you’ve ever met (or at least those you’ve inconvenienced by being late).

In the great lottery for car parking spaces, you are a loser. Maybe you got up a little later than normal, maybe a couple of other people have arrived earlier, moved house, started to use the car, who knows? Something has interrupted the balance of your morning and it just isn’t fair.

Market forces may fail
It could be that you have a point. In many societies, “the market” often sorts out the distribution of goods and services – the more you pay, the more you get. Perhaps by the time you’re cruising around the full car park, you’d happily pay with the life of your first-born child for a space; it’s just there’s no one physically there to make the deal with.

Parking spaces are generally sold using “posted prices” – the price is the price is the price. And when there are plenty of people willing or able to pay the price, if you snooze, you lose.

It’s not just you who loses out as you leave a full car park. The people who own the car park can be losers, too. They could have charged more for each parking place but because they undercharged for the spaces, every space is full.

Meanwhile, there are still disappointed motorists disappearing over the horizon in search of a (possibly more expensive) alternative. So if there are people willing to pay more, you need some way to work out the “correct” price: perhaps an organised marketplace, with the car park owner holding an annual auction for the rights to park there.

We might need to ignore the “he parked in my space” arguments. Theoretically, this type of system would mean that scarce parking spots were what economists would call “efficiently allocated” - they’d go to the people willing to pay the most for them.

Advantage to the seller?
Charging each person his or her own price can make sellers better off. A Vickrey auction, where bidders submit sealed bids but the winner pays only the second-highest bid value, would ensure that all participants will bid no more or less than the exact value that they place on access to a parking spot.

If people were rational, they’d try to work out how much the space is worth to them.

Let’s imagine a car park next to a train station with 200 spaces. The owner offers everyone who wants to park one chance to submit a sealed bid stating the amount they’d be willing to pay for a space.

If people were rational, they’d try to work out how much the space is worth to them – how much it might cost to get to the station by taxi, or how much they’d be willing to pay not to have to trudge home on dark, dank winter evenings.

Using a Vickrey auction would mean that everyone would pay the amount bid by the next-highest bidder, until the 200th person, who would pay the price of the poor 201st bidder, who would miss out – because they didn’t bid enough. The highest bidder might end up paying a vast sum for the right to park, while the last space might go to someone for a fraction above the current rate.

Either way, the car park owner cashes in: when the UK’s 3G phone network rights were sold using a similar auction approach, the country’s government laughed all the way to the bank.

So the car park owner is rubbing her hands in glee and everyone is paying a price to park lower than what they said they’d be willing to pay, but what about people who only occasionally need a parking space?

Fairest of them all?
"Fairness" depends on context. Without some system to manage the resale of unused parking spaces each day, people with lots of money will leave their spaces empty, while people who only need a space occasionally have to pay expensive taxi fees, get sweaty on a bike, or get walking.

And what about people with disabilities who may have fewer alternatives? At risk of sounding like a three year old, it doesn’t seem, well, fair.

It might not be: it turns out that our perception of what is fair depends on what we’ve previously experienced. So if we’re used to a first-come-first-served queuing system, we’re more likely to see a “money talks” system as unfair.

Researchers in the University of Lyon’s Transport Economics Lab set up a survey to find out more. It turns out that perceptions of fairness depend on the type of good or service being allocated (the rules for train seats can differ from parking spaces) and on whether the shortage is one-off or ongoing.

Moral rules seen as fairest
Bad news for car park owners: more than 90% of respondents thought an auction system of peak pricing for parking when the number of spaces is fixed was unfair. On the plus side, “moral rules” where “priority is given to persons with reduced or impaired mobility” are considered the fairest method of allocation.

It turns out that we are used to having spaces put aside for those who need them most – rather than those who can pay most. So where does this leave you as the poor late-running commuter? You may need a new alarm clock.


eZonomics team
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