The City of Austin sells valet parking companies the right to use a parking space for $250 per year. Is that the right price? I doubt it.? The appropriate price would be the?opportunity cost – which is at least the revenue raised if the slot were open to the public and metered. It may be much more than that. The only sensible way to determine the appropriate price would be by some kind of auction, including allowing private citizens to bid.? Their bids, plus the competition among valet parking companies and the restaurants that contract with them would help the price reflect the value of the space more closely. As it is, the average driver/parker is probably subsidizing restaurant customers who use valet parking, the restaurants themselves and the valet parking companies.? A classic problem – the same one that used to describe spectrum giveaways before we started auctioning frequencies. (HT: CW)
The Right Price for Parking
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Does the valet company get the parking space for the entire day, or just (say) after 6pm?
The appropriate price would not be the opportunity cost as you state; the appropriate price would be found where marginal revenue (from the sale of rights to an additional parking spot) was equal to the opportunity cost. With a downward-sloping demand curve this would occur at a price level above the opportunity cost.
The above assuming, of course, that the city’s goal is to maximize revenue from the parking spaces.
I’m sure the valet companies don’t lobby for this advantage at all.
If I paid the City of Austin $250. would they permit me a specific reserved parking spot 24/7/365 for a prime downtown city location?
….Not even the Mayor can expect such a deal.
In NYC a privlege like that would probably go for over $100,000 per year for some fatcat at Goldman Sachs.
The real shysters get an ACL tear from playing basketball, get knee surgery, and keep the Handicap Parking Plate for a decade.
The actual price discovery could best be made by way of an open auction though whether it really represents the value could be debatable. Private citizens, for example, might not want to bid for parking spaces far from their places of residence of work.
The current scheme could be looked upon as a means of subsidizing the restaurant businesses and might be a factor in their success as not many restaurants might be able to pay the market determined price for the parking spaces.
My guess is that the restaurants aren’t giving away the valet parking for free either (at least they don’t around here). So, the restaurant is capturing alot of the excess utility above the artificially set ceiling price in the demand vs supply curves.
It seems like the city could accomplish all of the same economics effects much more efficiently by auctioning off the spaces, and then giving tax breaks to restuarants.
Of course that ignores the economic effect that probably has the biggest impact on the policy: political contributions from restaurant owners to city politicians.
The idea of an auction is indeed obvious. In fact, it’s so obvious that my first inclination is to think that they used to do that but it didn’t work and they changed.
Did you bother to phone them up and ask before committing pen to paper? If not, why not?