RE: Algorithms To Live By #5: Optimal Stopping And Parking In The City
Very interesting indeed. I frequent San Francisco and my immediate reaction was "Why are parking meter prices different in different neighborhoods?" Many consumers are trained this way. They expect to pay the same price everyone else paid. Regardless of demand or time or when then buy, etc. Dynamic pricing is now accepted in the airline industry and hotel industry. These are relatively high priced goods so there is a wide range in prices. I think the challenge with parking is that its relatively cheap and people aren't that price sensitive. Or another way to look at it is cities won't increase prices to the point that consumers start to react. Prices currently range from $0.25 per hour to $6 per hour. A big range but $6 for a parking spot during a meeting in downtown San Francisco is not a big expense. SF won't make that spot cost say $50 per hour because they will be subject to the "only the rich can afford it" argument.
Thank you for bringing the specifics! Now I know the actual range of prices. You are completely right, the prices cannot be truly dynamic because you cannot start charging $50 per hour. Specially considering how economic differences have become wider over the last decades. Furthermore, you hit on another important aspect, consumers have been trained to pay the same price for "the same" product. To the naked eye of a consumer, it is not easily perceptible what the occupancy rate of a neighborhood is. Maybe if people understood the principle behind these different prices, they would be more willing to accept it and expand it.
I know this is not a bulletproof solution, but I think it a good approach.
It is an excellent approach. Didn't mean to sound negative on the whole article. I have read or seen Shoup interviewed before...good stuff.