Per hour parking

by on March 21, 2007 at 8:01 am in Economics | Permalink

A loyal MR reader asks:

How come parking in New York City (well, Manhattan, at least) is always
priced so that the first hour is very expensive ($10-ish), but staying
for the whole day is only slightly more expensive (typically about
double the one hour rate).  Everywhere else in the country it’s pretty
much a flat rate of $X/hour give or take a bit.  You’d think the high
land value of Manhattan implies the largest cost of running a parking
lot was "rent" so prices would be closer to a per-hour charge.

Maybe the tourists (i.e., New Jerseyites) are high demanders and bad searchers.  They also park for only part of the day, either to see a museum or to attend a meeting.  Charging a high upfront rate is a way to gouge these sorry souls.  Commuters are more price sensitive, but they account for the bulk of the parking only in other American cities; furthermore since they park for the whole day they pay the same daily price no matter how skewed the rate for the first hour.

It is very hard to tell from the ingoing sign what a Manhattan spot is really going to cost.  Yet it is an equilibrium for the price of parking to be non-transparent.  You can put on your sign "This spot is really only $25," but that is not credible.  For how many hours?  A vaguer sign will fool the fools (sounds like $20 but adds up to $40), but not irritate the regular customers and the smarter people who know better.

Might there also be a supply side explanation?

Manhattan parking is more packed in, which means an attendant has to reshuffle the cars when people come in and out.  Those labor costs are fixed, no matter how long a particular car stays in a particular spot.  So that charge is passed along to any parking visit, whether it lasts long or not. 

And is the relevant competitor to a parking house a cab or a subway ride?  The cab or subway charges by the trip, and not by how long you stay in your new location.  Might the resulting competitive equilibrium also involve a fixed, per trip charge on the part of the garage?  If a garage charges you evenly by the hour, parkers with shorter single visits will drive around and repark in different garages, rather than take cabs.  But theirs is a stupidity which the individual firm wishes to capture for itself, rather than allowing it to spread to the market more generally.  And that again means a high fixed cost for parking at all, so as to lock them in.

Note that Manhattan parking usually has open spots, even in the middle of the day.  D.C. parking does not, try finding an available midtown garage at 1:30 p.m.  Why is the value of excess capacity greater in Manhattan?  I suspect it all comes back to those naive New Jersey tourists, out for a quick joy ride to MOMA.

#31 in a series of 50.

Jason Voorhees March 21, 2007 at 8:14 am

Tyler, are you thinking the parking prices are under-priced? Or are you explaining the public choice of setting parking prices? My default is to believe automobile issues, like congestion, pollution and parking, are always mispriced.

DK March 21, 2007 at 8:28 am

Since when is this a Manhattan only phenomenon?

Nearly every parking garage I know has different daily and hourly rates (chiefly in midtown/downtown Atlanta). I would be shocked to learn that this is true only of Atlanta and Manhattan, although it might be b/c I work near Atlanta’s primary theater. “Early bird” rates before 8AM are also common, as are evening rates that are 2x-3x more than the “daily” rates. My guess is that the higher hourly charge is b/c commuters (esp. early birds) tend to go home for dinner before the profitable evening crowds arrive, while tourists are more likely to stay past 7.

The only exceptions here are in the heaviest tourist areas, in the Georgia Aquarium, Centennial Park, and CNN Center, where the norm is a fixed “daily” rate which is really a per-visit charge on tourists.

Matt March 21, 2007 at 9:06 am

This is defnitly not only a Manhattan phenomenon. Almost all the parking lots in Philadelphia, both in the center city area and near Penn (and maybe others) have different rates for the first hour, for “early birds”, for the whole day, etc. (Except for a few choice lots it’s usually not too hard to find parking in the lots, either.)

Ted March 21, 2007 at 9:30 am

1) Re capacity: The ratio of tourists to productive workers (or even just workers) is much higher in DC, and DC tourists are more likely to be driving.

2) Re capacity: People will drive to downtown just for lunch in DC from outside offices in the suburbs. That’s much more rare in NY, but it creates a parking problem around 1:30 which has been exacerbated as DC downtown revitalization has reduced the number of empty lots used for parking.

3) Most garages charge more for the first hour, not just in New York. Just seems like a basic price discrimination to capture consumer surplus to me.

John F. Opie March 21, 2007 at 10:57 am

Hi -

I can’t believe that the comments or the original post: this is not only something that isn’t new, nor is it in any way unusual.

First of all, time **is** money.

Second, land in *any* major downtown area is expensive, Manhattan perhaps a tad more than Chicago, but not by all that much. How do you, an owner of a piece of land in said area, maximize your profits? By developing such land so that your rents are maximized for the given level of investment.

What do you do as long as the land is not developed? Or more exactly, what do you do while the powers that be (planning boards) delay to decide what you are allowed to build on that land?

Rent it out by car space. There is multiple pricing going on here, and it doesn’t take a wizard to figure it out: no big city kids posting here??? I learned this when I started driving in NYC, it’s empirical evidence…I’ve even seen in in Seattle.

You differentiate the price by penalizing those who want the convenience of popping into Manhattan, picking up the cheesecake at Carnegei Deli, and then drive back out to New Jersey: this can be accomplished in 1 hour, basically, if the parking space directly in front of the Carnegie Deli is free (it never is, get real), but if you do it via public transportation you will be gone for at least 4 hours, and that’s only if you time it perfectly: figure more like 5-6 hours.

Now, if your preference is to get that cheese cake in 1 hour rather than 5, then you drive into Manhattan, hope that the parking spot in front is open, then when you see it isn’t (AND the traffic cops are standing there waiting to impound your car for blocking traffic), then you pop down the street a tad and pull into the parking lot, walk up, get your cheesecake, go back, pay that $15 for the first 20 minutes and you’re gone.

The parking lot owners have maximized their ownership of location for those seeking the greatest benefit of saving time. Real estate: location, location, location…

Now, there aren’t that many people soooo enamoured of Carnegie Deli cheesecake (fools!) that they are willing to do this all the time, so you price parking differently for those who come for different reasons. Last time I was in New York I was there with my wife and two daughters (my bank account still hasn’t really recovered) for some shopping. We drove in early and found a parking garage at the exit of the Holland Tunnel that cost $16/day if you were there before 9 AM. We were, since the $16/day was less than 4x train fare to where we were staying in NJ: this was $12 or so, so 4*$12>$16 + $4 for the Holland Tunnel and we drove in for the day. I won’t bother figuring in wear and tear (rental car) and gas (trivial).

Got a meeting in town? Starts at 1100? Live in Trenton? Got your next meeting at 1500 in Brooklyn and then 1700 with the attorneys in Connecticut so you can buy that property? Then you drive in the morning so you are there at 1030, park and pay the high rate, leave 3 hours later and then off to Connecticut. You pay for that flexibility of mobility via the parking places in Manhattan and in Brooklyn. You literally cannot do that travel with public transportation in that time frame, not and be able to count on making your meetings.

And the evening prices vary enormously, from dirt cheap near Wall Street to astronomic around the theatre district. The parking lot operators are charging what the market will bear – they are, however, regulated – and are using price discrimination to do so.

Want to see this in action? Go here:

http://www.nycgarages.com/#1

and enter at the top a parking time of 1 hour from 1000 to 1100.

At parking garages far from where anyone wants to go – say w49th and 10th, it’s $8. If you want to park at w. 57th between 6th & 7th, it’s $24 for the same period of time.

Go from 0800 to 1800 and it’s $12 vs. $24: the w57th place doesn’t care if you leave your car for 1 hour or 10. The w49th place does.

Why doesn’t the w57th place charge more? Because it’s more convenient to park there and they’ve found, empirically, that the best mix is to charge what is basically a flat rate: enough folks in and out all day to maximize their property rents.

I think there’s a damn good study waiting to be made on discriminatory pricing using that web tool ut supra… :-)

John

Noah Yetter March 21, 2007 at 12:13 pm

Similar situation in downtown Denver. Pricing here is typically stated in the form of, say, $3/half hour, $6 maximum, meaning the spot is yours all day for $6.

Bernard Yomtov March 21, 2007 at 1:57 pm

I think the labor cost issue is important. An operator who tries to break the equilibrium by charging a more nearly level per hour rate will attract more short term parkers, driving up labor costs.

The high rate for short periods also reflects another supply issue. More short term parkers mean higher vacancy rates in the garage, so the short-termer is, in effect, paying something for the space even while it’s empty.

Asif Dowla March 21, 2007 at 9:56 pm

Isn’t there a much easier explanation–third-degree price discrimination? People who want to park for short period have inelastic demand and as a result they end up paying higher price.

Gerard March 31, 2007 at 7:23 pm

I drive into the city all the time and never have issues parking on the street. I know where the day meters are, and the time in the evening commercial parking opens up for general parking in most midtown neighborhoods.

Benjamin Sann August 19, 2007 at 2:15 am

Look at all that spam…

Anyway, John mentioned the tool NYCGarages.com and talked about it in depth. I am the founder of that service, and just wanted to let you know that we have re-branded as http://www.BestParking.com . We still compare all NYC Parking rates, but also support free reservations.

不動産投資 July 18, 2008 at 1:03 am

資金を増やそうとするのに不動産投資をするのが手っ取り早い。日本で不動産で東京 賃貸をさがすのはきわめて難しくシステム開発は日本の会社が良い。

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