Why Is Parking Free?

by Wally Thurman

Tyler Cowen has recently promoted the idea that parking in America is costly and inappropriately provided mostly for free.  Summarizing a recent book by Donald Shoup, The High Cost of Free Parking, he argues that at zero price, Americans park their cars a lot and generate congestion and impose costs on others.  Among the problems he cites: local zoning boards require stores to build a minimum number of parking spaces–more than they would choose absent coercion. Cowen argues that it would improve resource allocation if such requirements were eliminated, the end result being fewer parking spaces and, presumably, stores charging for their use.

Cowen’s observations are intriguing–they suggest that free market proponents should urge planning boards to free big-box retailers from the yoke of parking requirements.  Let the market speak and it will say that parking–unlike information on the internet–does not want to be free.

While still digesting Cowen’s observations, I awoke today to a letter to the editor in my hometown Raleigh News & Observer, written by environmental resource conservation professor George Hess of North Carolina State University.  In his off hours, Hess serves on the Land Use Review Board of Knightdale North Carolina.  He writes that his board does, indeed, stipulate minimum numbers of parking spaces that a retail development should have.  (It also stipulates maximums.)  But, he observes, developers never propose to build parking lots of just the minimum size and often seek to build more parking spaces than the board’s maximum.  At least in the case of Knightdale (near Lizard Lick, by the way), the government restriction that Cowen worries about is never binding.

If Hess’s experience is the norm–and I don’t know that it is or isn’t–then I see no market-based opposition to free parking.  It may be unsound to have a retail society based on free parking.  But it is unlikely due to government regulation.

Suppose that Hess’s experience generalizes: that free parking at retail stores is not the result of government regulation.  We’re left with the question of why stores provide free parking when they do (they don’t in Manhattan.)  I see two possible answers.

The first is based on price discrimination.  Suppose that there are two types of buyers who shop at Best Buy for a GPS device: high willingness to pay and low willingness to pay.  Best Buy has some local market power and would like to charge a higher price to the high WTP consumers and a lower price to the low WTP consumers.  The problem Best Buy faces is that they can’t tell which customers are which.

But suppose that the low-WTP customers place a high value on parking.  They enjoy the shopping experience, combining their Best Buy trip with a stroll around the mall and a Frappuccino.  They just aren’t wild about GPS.  On the other hand, the customers with high WTP for the GPS units don’t have high demands for parking.  They drive to the store, park, buy the GPS unit, and navigate back home.

Given this scenario, Best Buy can best exploit its customers by posting a high price for the GPS unit in the store, and giving away parking for free.  The high-WTP customers are not (much) influenced by the free parking–they just pay the high price.  The low-WTP customers are only willing to pay the high in-store price because along with it comes the free parking.  If the profit increase due to discriminatory pricing outweighs the efficiency loss from not charging for something with positive marginal cost, then Best Buy offers free parking.  End of price discrimination story.

If those who don’t want to hang around the mall typically are willing to pay a higher price for the commodity, this helps explain the ubiquity of free parking.  (If the higher WTP customers were those who did want to hang around the mall, then the optimal pricing scheme would be to charge a low in-store price for the GPS unit and a high per-minute parking fee.  This is Steven Landsburg’s favored explanation for why popcorn costs so much more than its marginal cost in movie theaters.)

The price discrimination story holds water, I think, but whether the correlation between demand for parking and demand for retail goods is so systematic as just described is an open question.  Which brings me to the second explanation for why parking is free, and the one toward which I am inclined: the transactions and metering costs of parking dictate that it often should be free, despite the efficiency gains that could be had by pricing it.  Fast food restaurants sell hamburgers but give away napkins for the same too-cheap-to-meter reason.

Neither of the explanations discussed here have obvious pro-market policy implications.  The social costs of parking may be large, but I’m not convinced that in the case of retail parking they result from the heavy hand of regulation.

Wally Thurman is a senior fellow at PERC and a professor of economics and agricultural and resource economics at N.C. State.