Why It’s Fair to Save a Parking Spot – For a Price

Tech start-up Haystack has developed an innovative – and controversial — solution to the stressful challenge of finding an open parking meter in congested areas. This smartphone app allows those leaving a parking space to alert other Haystack users in the area of their “about-to-be” open spot. To secure this meter (i.e., have the parked car driver wait until they arrive), users pay a fee of $3 (75 cents goes to Haystack while the incumbent “parker” pockets $2.25). Not surprisingly, Haystack has stirred up controversy amongst city officials, particularly in Boston, as well as drivers.

We explored these and other questions with pricing strategy author and consultant Rafi Mohammed. An edited version of our conversation is below.

First off: From a pricing perspective, is Haystack a good idea?

Absolutely! Haystack provides a solution to a key market failure in popular parking areas: meter prices are too cheap, which results in excess demand.

Start-ups like Uber and Haystack seem to be profiting by capitalizing on pricing inefficiencies like the one you just mentioned. Is this an emerging trend?

A great point that’s spot on. It just doesn’t make sense, for instance, to charge the same price for taxi cabs all of the time. Uber is brilliant in charging higher prices during peak periods (which incentivizes more drivers to provide service, thus increasing supply) as well as lowering prices during slack periods to generate more demand. Technology allows Uber to strategically flex prices and just as importantly, inform its customers of the current price. Customers are better served by this innovative pricing.

Parking meters are notoriously underpriced. A private for-profit garage in downtown Boston, for example, charges $12 for the first hour and then scales rates up to $32 for 24 hours. Meanwhile, public parking meters located directly in front of this garage run $1.25 an hour. As a result, drivers seeking a meter circle around (…and around) until they “luck out” by getting a below-market priced parking spot. Haystack is simply providing an arbitrage solution to a market failure created by poor city regulation.

But is this fair?

Is it ok, for a fee of $2.25, to “save” a parking space that you’ve paid for? What about saving a space for a family member or friend at no charge? These answers to these questions are really subjective. I will point out, however, that it’s axiomatic for a secondary resale market to emerge for any product that is priced below-market. Examples of this are in-demand sporting or music events that are routinely resold at higher prices through the scalper market.

The bigger question is whether meter rates should be so low that it incentivizes people to drive into the center of town (instead of taking public transportation) and then incur the time, frustration, and extra gas to find a cheap parking spot. Don’t even get me started on the wasteful pollution generated throughout this process!

In other words, though, is it a right of all citizens to have access, albeit inefficient access, to rock-bottom priced parking? I don’t think so – I vote for jacking up meter prices and investing in public transportation improvements.

And when you think about it, Haystack represents an incredible value to parking spot seekers. A $3 fee secures, for instance, $1.25 an hour parking in Boston instead of paying $12 at a garage. And then, if a driver uses Haystack to “re-sell” their space, they’ll reap $2.25. Thus, a net price of 75 cents enables drivers to save a bundle – seems like a bargain to me. Perhaps Haystack should boost its prices!

So what should local governments do about Haystack?

Officials, for instance those in Boston, need to stop being so status quo and allow technology to better serve their residents. Haystack exists because city officials have done a poor job of pricing parking spaces. Instead of needlessly obsessing on Haystack, cities should start dynamically pricing parking meters based on demand: increase rates during peak times and conversely, discount during periods of low demand.

San Francisco, for instance, is currently dynamically pricing parking spots. Meter rates in pilot neighborhood blocks are being varied based on demand with the goal of at least one space always being available. That’s a much better solution than complaining about a start-up that actually solves a major problem.

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