Tuesday, June 12, 2007

Yield Management for Metered Street Parking

What if parking meters were priced more like airline seats?

The backstory: “Yield management” is what most airlines do when they sell you a seat. The price you pay might be different from what it was yesterday, or will be an hour from now. It depends primarily on the current and expected demand for the seat (usually, the seating class) you want.

By increasing or decreasing prices with demand, the airline can maximize the revenue from a flight’s inventory of seats. The goal is to avoid empty seats that generate no revenue while getting the highest rate possible on filled seats. Because many different, constantly changing factors are involved, managing the yield is a complex task.

With that intro, let’s transition from airline seats to metered street parking. Like airline seats, metered parking spaces are perishable goods: If they go unused, the potential revenue is lost. Also, as a flight has a limited number of seats, a geographic area has a limited number of metered parking spaces.

Cities raise revenue from parking meters and thus have incentive to manage the yield upward. However, the usual rule is one price fits all. Some cities have different prices in different areas, but that’s a long way from active yield management.

A major obstacle has been the the traditional parking meter. The closest it comes to measuring demand is a coin count when the meter is emptied. But even if it could continuously measure demand (“Hey, my space has been empty 35 minutes!”), the traditional meter does not have a way to adjust its pricing automatically.

Enter new technologies. Today, digital meters exist that can change pricing depending on the day and time. Also, a variety of technologies exist to detect when a car enters and leaves a parking space; as a result, demand is measurable not just by meter but by day of the week, time of day, and so on.

Using such new technologies, the Port of San Francisco recently ran a test to understand how its meters were being used. The test involved multiple vendors of next-generation parking meters, with measurement by Streetline Networks, a San Francisco start-up. Streetline has a wireless sensor system that tracks when cars come and go from spaces.

Here is an example of data collected by Streetline at a particular meter:

The graphic shows December 2006 metered hours (in gray), occupied hours (in blue) and paid hours (in red) for meters along the even side of 200 Embarcadero, broken out by day of the week.

Among the findings of the study:

  • Demand varied significantly at the same meter during the day, often predictably so. (In the graphic above, note how uneven demand is within each day yet similar across weekdays.)
  • Demand could vary widely on a block-to-block basis.
  • Higher pricing did not affect usage. Meters priced at $3 an hour were used at the same rate as when they were priced at $2 an hour.

The test’s one attempt at varying prices involved progressive pricing. Meters were $3 for the first two hours, $4 for the third hour, and $5 for the fourth hour. The idea was, instead of having parking cops enforce a two-hour limit, let the pricing system enforce it by making people pay more the longer they stay. (If you’re trying to imagine who would pump $15 worth of quarters into a meter, you’ll be relieved to know the test allowed payment by credit card.)

However, progressive pricing was a poor tool for managing yield at peak times, such as at lunch. Quoting from the minutes of a Port Commission meeting where the findings were presented:

What makes it a peak is that most people arrive just before it and most people leave just after it. What you end up having with a progressive rate system is that most people pay the lower rate during the highest usage hour. People [staying] a little longer ended up paying higher rates when demand is lower. This is the opposite of what you want to see if you’re trying to balance usage over the day.

Going forward, the Port of San Francisco will be trying other pricing policies:

Block-by-block, there’s a huge variation in demand for on-street parking which means that we need to have pricing policies that are more specific to a specific block or a geographic areas as opposed to Portwide pricing....

When people are parking in the middle of the day between 11a.m.-2p.m and the pricing is just for two hours and the third hour and the fourth hour. We learned that if we want to deal with congestion we have to deal with time-of-day pricing as opposed to straight per hour rate.

In other words, they need to price parking meters more like airline seats. Other thoughts: Vary the prices of the meters near the ballpark around game time. Allow longer time limits in areas/times with low demand.

These pricing schemes are not as dynamic as airline-seat pricing, but they go a significant distance in that direction. Because parking meters are not reserved ahead of time, and checking the price requires some form of stopping, there are practical limits to how dynamic the pricing can be, notwithstanding future visions of parking meters auctioning their spaces wirelessly to cars cruising the area.

You may ask, is this all a good thing? No one likes paying more for parking, and unlike with airlines and airline seats, a city has a monopoly on metered parking spaces. What is in the public interest?

I don’t have a definitive answer, but from time to time I’ve noticed the work of Donald Shoup, a professor at UCLA who specializes in public policy related to parking. Having studied the subject for decades, he says metered parking is usually underpriced, and for that matter, there’s too much free street parking. In this New York Times opinion piece, he makes his case.

Independent of the public-policy debate, it’s safe to say that elements of yield management will increasingly apply to metered parking, simply because it’s now feasible and thus will be tried. Per the old adage “If you can’t measure it, you can’t manage it,” I expect cities to find that if they can actively measure street-parking demand, they can manage pricing better for a wide range of public-policy goals.

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