Free parking and small business Saturday

Since 2010 the Saturday after Thanksgiving we are celebrating and supporting small businesses. This was a way to counter Black Friday and Cyber Monday that mainly feature big-box retailers and huge e-commerce stores (well, mainly Amazon). Many local governments promote and support (as they should do) small local businesses. In Pittsburgh (and in many other places across the country) one of the ways the local government promotes small business Saturday is by offering free curb parking across the city.

The intentions are certainly good; no one argues about that. The line of thought for offering free curb parking, is that by removing the “barrier” of curb parking pricing, more customers will decide to drive and come out to support local businesses by shopping. Sounds reasonable, but it is not the case. Sure people love free parking (even though nothing is free in life; we pay for it in other ways), but remember the objective here is to support local businesses. What do local businesses need? Infrastructure to support the – hopefully large – incoming flow of customers. Parking is one such infrastructure, that allows customers to temporarily store their cars, and run their errands, including shopping. Therefore, local businesses ideally want this infrastructure to be able to support as many cars as possible. Given that the number of curb parking spots are fixed, this means that the turnover of each parking spot should be high. The turnover of a spot is simply the number of cars parked in that spot during the day. A higher turnover, means that more cars parked in one spot, which can potentially translates to more customers.

What does free parking do? Free parking actually reduces the turnover of a parking spot! When parking is free, drivers do not have parking ticket anxiety anymore, and turnover plummets. Simply put, someone that might park for 30 minutes, run their errands and leave, might now stay 60 minutes and take their time in completing their errands. So this spot will be occupied for an additional 30 minutes, possibly not allowing another potential customer to park. Will this second person leave the area and not shop? Chances are not, but what will happen is that they will circle around to find a spot, increasing traffic, polution, and we all know what this does to our mood. Not to mention, that they might think of it twice before going back next time.

While we cannot know how exactly people will react when they cannot find a spot (i.e., leave or keep circling), we can get an estimate of the turnover of a spot through simulations. Assuming a simple Poisson model we can simulate our parking spot’s state. Starting with the – realistic for business areas – assumption that there is high demand for parking (which is actually another side-effect of free parking, that is, induced demand), we can simulate the turnover of a parking spot based on the changes in the average service rate of a parking spot. For example, if the average occupancy time of a parking spot is 30 minutes under normal pricing, we can expect this time to increase when we move to free parking. We do not know by how much but we can simulate a variety of cases ranging from conservative (e.g., a 5 minute increase on average) to more pessimistic ones (e.g., doubling the occupancy time). The following figure shows the simulated distributions for the turnover of a parking spot under different scenarios.

As we can see even under conservative assumption (average occupancy time increasing by 5 minutes), the spot turnover is reduced by approximately 14% (from an average turnover of 21 to an average turnover of 18). Businesses need spot turnover. Free parking achieves the opposite. So if we want to support local businesses, we should come up with other ways and not free parking. Borrowing from the core idea of PittSmartLiving of bringing together public transit, commuters and local businesses, free bus rides or free bike rides to specific business destinations could be a good start. This can help local businesses, can help dwellers particularly from underserved communities, while at the same time promoting public transit as a viable option for moving around the city. Equally important, is the signal sent by offering it for free during a small business celebration that public transit is a crucial link between people and businesses.

For anyone interested in the economics of parking (which are very different from what a superficial view of the topic might imply), the book “The High Cost of Free Parking” by Donald Shoup is a must-read.