The economics of car towing
Yahel, a loyal MR reader, asks:
What's
the model of towing? I live in Philadelphia, and have noticed one
particular company, Lew Blum, seems to have most of the market cornered
for towing cars parked illegally in private parking spots. How does one
acquire market share? Do the owners of private parking spots pay for
having someone like Lew Blum come and tow the cars that are taking
their spots? Or does Lew Blum offer money for the right to tow their
problematic cars (as they charge the owner of the car $150 to get the
car back, and $25 for every day it sits in their lot.) I can imagine
rationales for either model. On the one hand, Lew Blum is providing
owners of the spots a service by clearing out the vagrants. On the
other, he's guaranteed $150+ for every car he tows, so he (and all of
his competitors) wants to maximize the number of spots/lots they
'protect', and that competition should drive the 'cost' of the service
down to at least $0, if not negative $ (ie paying for the right).
A Google search on "economics of towing" doesn't turn up much. This site indicates that tow trucks were "deregulated" in 1995 and free entry, without traditional municipal permits, became the norm. That same post has a long discussion of "rogue towing," which I suppose is not hard to figure out. In many locales they are supposed to wait an hour before towing your car, even if it is illegally parked.
Here are the San Francisco towing regulations.
I'm puzzled that I can't find any discussions of towing company kickbacks to merchants, for giving them the towing call. Why isn't this more common? Surely the marginal profits on a tow are positive.
Overall towing seems like a "tragedy of the commons" problem, with an incentive for overly rapid and indiscriminate towing. If towing is a natural monopoly, the monopolist may be less quick to tow, because the alternative is that the firm will likely "capture" your car anyway. So if overtowing is a problem, monopoly may be preferred.
What else can you tell us about the economics of towing?