Selling Parking on eBay

Nowhere are the laws of supply and demand more evident than in the parking lot. Most parking managers are unfortunately limited in controlling their parking supply – very few have the luxury of creating new parking stalls on a moment’s notice.

But parking demand is another story. For parking lots and locations requiring some sort of permit to park, the demand can be virtually unlimited. If you don’t believe me, look at urban campus parking registration just before school starts.

In case you’ve forgotten your Economics 101, parking falls into the category of “demand-side” economics since supply is essentially fixed (over the short term). The demand for parking, however, is somewhat elastic and can easily be controlled by price: for example, charging $50/day to park will generate less demand than charging $5/day.

For the parking manager the goal is simple: to match the demand to the supply. In other words all of the parking lots must be sold out such that they’re always full – no empty stalls, and nobody driving around looking for a stall.

This is the optimal price point. It’s where the supply and demand curves cross, and for reasons obscured by mathematical complexity it basically ensures that both the maximum number of customers are happy and at the same time the maximum possible revenue has been generated.

My feeble drawing of supply-and-demand curves at the left attempts to illustrate this situation.

So how is this parking utopia realized? By charging exactly the right price for parking, of course. Control the demand through creative pricing. The parking manager needs to find the price point that matches demand to supply: not too low as to encourage permit oversell, but not too high so that to leave stalls empty.

(Okay, that’s the theory. For the purposes of this essay we’re ignoring those annoying real world issues such as seasonal demand shifts, varying acceptable levels of oversell during the day, fraudulent permits, and governing bodies enforcing arbitrary price floors and ceilings – such trivialities are best saved for that Economics classroom).

So assuming that a parking manager has freedom in setting the price of parking, how does one go about finding this price? The answer is actually pretty simple: the parking manager holds a parking permit auction.

Parkers attend the auction to bid what they’re willing to pay for a parking stall and the manager in turn releases the stalls (permits) to the highest bidders.

But how could you auction off hundreds - or more likely thousands - of parking permits? Surely this would be an administrative nightmare.  Or would it?

Enter eBay… the world’s biggest auction site  with a couple of gazillion items for sale at this very moment.

It turns out that eBay supports a special kind of auction designed specifically for selling lots and lots of the same item. When multiple-items are offered for sale in this manner eBay refers to this as a Multiple Item Auction (sometimes called a Dutch Auction).

Here’s a simple example to illustrate the concept: Let’s say you have 100 permits to sell. You set a minimum starting bid of $20. Bidders log on and see the price and can choose to bid the minimum, or offer a higher bid. As more than 100 bids are received the minimum bid price goes up, guaranteeing that only the top 100 bidders will get a permit.

When the auction closes there is a variety of bids ranging from (in this example) $64 to $71. At this point all of the successful bidders win one of the 100 permits, and they all get their permits for the lowest successful bid price; in this example that’s $64. But most importantly everyone is happy: all the parkers get a permit for a price they’re willing to pay, and the parking manager generates the most revenue possible for selling 100 permits at the same price.

The seller and the bidders have agreed on their price and are committed to consummation of the sale at this point. The laws of supply and demand are met, and everyone is satisfied they’ve received maximum value from their transaction.

Selling parking permits on eBay?  Outrageous!  Would it work?  I’m convinced that it would.  If you give it a try, please let me know how it turns out.

Comments

[Janelle]

Blake,

I think a dynamic pricing scheme will be accepted if it's presented as a discount (instead of a price increase) to the parkers. Therefore, we will start with the highest base price and adjust the percentage of discount based on demand.

One potential side effect of this system is a price war. Assuming that demand patterns are pretty similar among garages in close radius, if one garage starts to drop its price the other garages might follow suit.

Janelle

[Blake]

Janelle,

Are you suggesting varying the pricing based on demand in a dynamic fashion? I didn’t think about this – but it’s an intriguing idea!

Basically the price would be cheap when there are no registered parkers for a lot and then the price would rise as the lot fills up and the supply becomes scarcer. The “last one in” pays the highest price. It’s like buying into a new condominium during a real estate bubble… :-o

I’m not sure how well parkers would take to having variable pricing. Since they view the product as a commodity (all stalls have equal value to them) then having the price of a stall increase because demand is high might make for a difficult sales pitch – great for the operator but not so good for the customer.

Electronically varying the pricing based on remaining stalls is kind of a variation on the theme of a parking operator offering an “Early Bird Special” to encourage parkers to arrive early… except that your model offers a theoretically infinite number of pricing points (well, okay, not infinite, but actually matching the number of available parking spaces).

Final thought: You’d better make sure there are sufficient stalls to park everyone. If you oversell the lot (which is common practice, of course, based on the probability that a fraction of your permit holders will not be present at any given time) then that last parker who paid top price is going to scream pretty loudly when no spaces can be found!

[Janelle Tsai]

Hi Blake - interesting theory. A couple of friends and I are actually toying with a similar idea as the one your proposed above. However, we are thinking more along the line of applying dynamic pricing to the parking world. So, the parkers who are willing to pay more for convenience will be able to get what they want at the price they are willing to pay, while other parkers who are more price sensitive will pay less for a lot that's further away from their final destination.

Any thoughts on that idea?

[Blake]

Kirk,

This is a good question! I'd say that the auction solution is not for everyone. Each parking operation's culture reflects that of the organization/owner that provides it – campus, municipal, or otherwise.

For example, some campus operations take a Socialist view of parking, charging a fee based on the customer's ability to pay (generally this applies to staff). So a staff at the clerical-level pay "X" for parking while a manager pays more than "X" and a director pays even more than that. All for the same parking space!

Furthermore, the auction method doesn't work very well when there are ceilings or floors established on the price of parking. For instance, unions negotiate better deals for their membership, or prices are set arbitrarily low to encourage types of parking that are not popular (example: Vanpooling).

So, bottom line, the parking operation has to WANT to support a free-market basis for pricing otherwise the results won't achieve the desired result of maximizing the number of happy customers and maximizing revenue at the same time.

[Kirk Strassman]

Hi Blake - interesting application of supply vs. demand. I believe that your model would work, but the reality of Campus Politics would ensure that it would be a political nightmare with a loud cry of "parking for the privileged" or "let them eat cake while they park". Maybe more realistic in a private or municipal market?

How would you propose to avoid the inevitable political issues with the auction model?

Cheers! - Kirk