Town planning: car parks (2)

To continue last weekend's post on the topic:

a) Caveat: as Chrometum explained somewhat over-forcefully, if we had more respect for each other and the environment, we'd have organised things to that we live in denser, better laid out towns and cities (branches not blobs) and we'd all manage perfectly well with public transport, being trains, underground, trams, buses all depending on the terrain. So much to the "liberal metropolitan" point of view.

b) But a lot of people like the faux bucolic rural idyll (TM, Bayard, popularised by The Stigler) of commuter suburbs and satellite villages which are only accessible by car. They don't really want their village to be accessible by bus, because buses are for the wrong sort of people. So people do their shopping by car as well, and as A K Haart, confirmed, if you've a choice between going shopping in Town A which has a big council car park near the high street or Town B which doesn't, people will choose Town A.

c) Pub Curmudgeon then made the interesting point that commuters, who need all day parking near the station are far less price sensitive than shoppers who need parking. This is a very interesting topic indeed, so let's have a closer look.

i. As a matter of fact, all day parking at the next Tube station in from where I live costs £6 on Monday to Friday, so people who drive to the station and then take the Tube are spending nearly £1,500 a year on parking as against £1,744 for their Zone 1 to 4 Travelcard. Which just goes to show, doesn't it? What do you think is more effort: owning a strip of land near a station, tarmacking it and sticking up some parking meters or laying and maintaining hundreds of miles of track, dozens of miles of tunnels, millions of miles of cables, lighting, rolling stock etc?

ii. But shoppers are price-sensitive, they'll happily spend £100 on the weekly shop in the supermarket but complain bitterly if parking costs them £1. And yes, that includes me. It's the sheer faff of working out what the bloody system is; finding the right change; do you pay before hand or afterwards; at a meter or at the barrier on the way out; which shops will refund the cost of your ticket etc.

UPDATE: Pub Curmudgeon adds: "Actually I think you got the wrong end of my point there. I was talking about car commuters into town centres. They will pay £2 for somewhere ten minutes' walk from their workplace rather than £6 for somewhere next door, whereas shoppers aren't really interested in anywhere ten minutes' walk away. This means that it makes sense for a town centre to have a stratification between short-stay, very central car parks, and all-day ones on the periphery."

Fair enough. I suppose the way to square this is for the town centre car parks to charge £1 per hour and the peripheral ones to charge a flat £2 regardless how long you stay. Which again highlights the difference in rental values between the middle of town and the edge of town.

iii. The simple revenue maximising model for commuter car parks works fine; you nudge up the price to whatever maximises your revenue. If you find that the revenue-maximising price means your car park is only two-thirds full, then you just sell off/use a third of it for something else.

iv. But the revenue maximising point for shopper parking is quite different. The spaces are primarily there for the benefit of the shopkeepers, and what they want is the maximum flow of customers. So the dry-cleaner or newsagent want the first fifteen minutes parking to be free; the hairdresser wants the first half an hour to be free; the supermarket wants the first hour to be free; the cinema wants the first three hours to be free.

v. Whoever owns/controls the parking just wants to maximise revenues. You normally find that the cost per hour falls the longer you stay, so the first half hour is 50p, the first two hours is £1.50, the first five hours is £3; all day is £5 and so on. This is exactly the opposite of what the shopkeepers want; they want the first hour to be very cheap (or free, see para. iv.) and for each subsequent hour to be more expensive than the last.

vi. Most station car parks are, by definition, near the shops because the shops are near the station. So we have a "kinked demand curve"; the revenue maximising price for commuters (price insensitive) is much higher than for shoppers (price sensitive). But the number of commuters is fairly fixed and the number of potential shoppers is much larger. This whole topic is heinously complicated and nobody is really sure how it works (or whether it is a good explanation of pricing policies), so I'll steer well clear.

vii. So let's go back to our shopkeepers and what the optimum car parking charges are from their point of view. As explained in v., there is a conflict of interests between whoever owns/controls the parking spaces (usually the council, the local train/bus company, but it might be somebody like NCP) and the shopkeepers; as explained in iv. there is also a conflict of interests between the "short stay" shops (dry cleaner, newsagent) and the long-stay shops (restaurant, cinema).

The only way to square all this is for the shopkeepers to collectively control the parking charges!

So, if the car park has a hundred spaces and currently rakes in £100,000 a year and there are twenty-five shops, each shop pays £4,000 a year into the pot (or some formula adjusted for size of shop or total turnover etc) and they take over the car park, decide their own scale of charges, and at the end of the year, they share out the parking revenues between them (pro rata to their initial contribution). Whether the larger shops think that paying a larger share of the £100,000 is "fair" all depends on whether the total revenues are more or less than £100,000!

viii. The shops then have to arrive at the maximum flow of cars i.e. customers by adjusting the parking charges by trial and error. At the margin, they are indifferent between receiving £1 from additional parking revenue and somebody spending enough money in the shops to generate £1 of additional profit. So it might well be that they are happy to collect only £50,000 in parking charges if that means people spend an extra £100,000 in the shops (generating an additional marginal gross profit of £50,000).

ix. To then balance the interests of long and short stay shopkeepers, the hourly price has to be constant; so half an hour is 50p, two hours is £2; three hours is £3 and so on. Shopkeepers can then decide whether to give their own customers/patrons refunds on their parking tickets to somehow maximise their own customer flow/revenues.

x. This all tells us that car parking is part of the overall service which the motorist/shopper is paying for and that the car parking charges are just part of the shopkeeper's total income. If Barber Mario charges £10 for a haircut and gives people a refund of 50p for half an hour's parking and Barber Mario next door does haircuts for £9.50 but does not give a refund, then motorists/shoppers will be indifferent between having their hair cut at Tony's or at Mario's, and so on.

xi. Clearly, the car parking revenues are rental income. Ultimately, all the extra income which dry-cleaners, hairdressers, supermarkets and cinemas earn above and beyond their actual marginal costs is all just rental income, isn't it? The parking space is as much part of their business premises as the newsagent's shelves, the dry-cleaner's clothes rails or the barber's chair or the cinema seat in which you pay to sit.