Auctions create wealth by identifying the highest valued use for an asset, and setting a price for it. However, this wealth creating activity is
against the law in SF:
SAN FRANCISCO (CBS SF) — San Francisco is putting the brakes on a mobile
app that allows drivers to auction off their choice public parking spotsto the highest bidder.
City Attorney Dennis Herrera Monday issued a cease-and-desist demand to Rome, Italy-based startup Monkey Parking and CEO Paolo Dobrowolny.
Herrera also sent a request to the legal department of Apple Inc. to immediately remove the mobile application from its App Store because Herrera said it violates Apple’s own guidelines on legal requirements for apps.
Aside squashing the wealth-creating ability of the app, the City Attorney is also increasing congestion and pollution, by lengthening the amount of time that drives have to search for spots.
Finally figured out the membership entry. Excited to blog!
ReplyDeleteEconomic Value in Public Property: Who gets to benefit?
ReplyDeleteThis blog post triggered a thought in my mind: what about the economic value of public property – who gets to exploit it and how? First, its well within the realm of possibility that governments will ban activities that exploit the value of public property IF they don’t get any economic value (in the form of taxes or fees) in the process. In this example of choice public parking spots being put into an auction certainly creates wealth but the app developers failed to understand that the government always gets its share. Had they understood this concept, they might have developed their business model for their app differently.
Cleary, public property gets exploited for economic value all the time. For example, perhaps 8-10 times a year I provide professional fly fishing guide services and I take all my customers to public rivers to fish. The state requires that we purchase fishing licenses and I have to pay for my guide’s license (every 5 years). So, public fishing waters can generate income for both the state as well as for me in the form of the fees I charge my clients to spend a day trout fishing. In some areas where public lands in the form of state forests exist, we may also have to pay an access fee to use public lands for fishing.
In the case of the City of San Francisco making the auctioning of public parking spots illegal – I believe they are correct. It would amount to the same thing if people (non-government) starting charging me a fee so I could access my favorite fly fishing river. Why should someone benefit from my right to freely access public property (fishing waters)?
So, I can derive economic value in fees I can generate for people who want to learn to fish but I cannot charge them a fee to simply access a piece of publically owned – publically accessed – fishing water.
Dave
Reference:
Froeb, L.M., McCann, B.T., Shor, M., & Ward, M.R. (2014). Managerial Economics: A Problem Solving Approach. Mason, OH: South-Western Cengage Learning.
This is another case of the government interfering with a natural market balance. While I understand the city’s case that the parking spaces are public, in reality the issue is not whether they are public or private, but rather that the city is putting a price cap on parking. The city really should thank the inventors of this app because they have figured out a way to determine the true value of the city’s parking infrastructure. That information is hard to come by in their normal regulated infrastructure. Instead of acting out of fear and banning the app, another option would be to embrace it and work with the city’s private parking system. This would create more incentive for others to enter the private parking market in San Francisco, if they knew they could make an amount that they found acceptable. I see a lot of similarities between this story and the Uber situation in New York City.
ReplyDeleteAt face value, public space auctioning does not appear to be reasonable or even a logical and sustainable long-term proposition. Who gives anyone the right to bargain public space with local consumers to the highest bidder. Such practice will ultimately create turf war and of course, space hostaging in some neighborhood. While this may be an attempt to capitalize on the wealth-creating ability of the app, there are capacity constraints on the available parking space, thus making it very difficult to gain any long run marginal revenue since there are not unlimited real estate properties to construct additional parking on an ongoing basis.
ReplyDeleteThe marginal cost of the parking space remains the same, however, overpricing in a very elastic environment will only drive consumers to another location that is much more affordable and less congested. This migration will ultimately impact store owners sales volume, thus, forcing a revenue decline in that particular area of San Francisco. Consequently, if the demand as a result of consumer migration is hard to predict then pricing to full capacity of the parking space becomes even much more difficult (Froeb.2014).
Leo Palmer ESC Econ
Reference
Froeb, MCcann, Ward, Shor. (2014) Managerial Economics. A problem Solving Approach.
Ohio:South-Western Cengage Learning.
I actually just returned from a business trip to San Francisco a few weeks ago. I was having coffee in downtown San Francisco with a client and we got talking about the rent prices in the city of San Francisco. He shocked me with the prices of some of the apartments ($5,000 for a one bedroom in some of the newer buildings), but he also informed me that San Francisco enforces “rent control.” Therefore, building owners are losing potential money from renters. What the client told me was that building owners are now sitting on vacant apartments instead of re-renting them once someone moves out. Since the value of real estate keeps skyrocketing, they are trying to either wait until rent prices plateau so that they can re-rent them, or wait until the building is completely vacant to sell it at an enormous profit. I don’t understand this because the mortgage on the building doesn’t go up, so isn’t some revenue from rent better than no revenue? Considering the apartments are rent controlled, it is reasonable to assume that many people will keep the apartments until the day they die so this would have to be a VERY long-term strategy.
ReplyDeleteThis seems like another stint by the local authorities to express their power and “cease and desist” an operation that benefits the consumers/user, but not them (government). It does make sense that users (or creators of the app for that matter) should not profit from those hoarding their parking space just to make $10 or $20 (not sure what the going rate is out in San Francisco for parking). These services are maintained by the government and therefor anything associated with them, should go towards the roads/parking upkeep and maintenance. This is a prime example of asset mobility, where the parking spaces are moving from lower to higher valued uses.
ReplyDeleteWhile the app does help to eliminate traffic congestion, in the short run this benefits the city of San Francisco. However, this pricing/bidding mechanism of the spaces would increase the costs of the parking space itself. Since there is high demand for the closer spots to the consumers end destination, it drives up costs. This is a competitive commodity in any large city. Great idea, just needs further testing to see how it benefits the city (other than less traffic).
This is an interesting twist on parking spots and the value they have in a city. To me it sounds as if the city is not happy, because they are not maximizing their profits on the situation. I believe if the city was able to profit this situation then they would probably be okay with it. My problem is that sometimes the city profits on situations that seem far less moral. For example, in the area that I live in there is minimal metered parking, however around the hospital there is all metered parking for 2hrs. This actually rubs me the wrong way because the odds are people are going to hospital for health reasons or to visit someone with some sought of medical issue. Then there are parking police that are quick to write a ticket, if you don’t feed the meter in time. I just feel it’s a means that the city makes money at the unfortunate timing of others.
ReplyDeleteIn the case of auctioning public spots, I can understand the city wanting a piece of the pie for auctioning the spot, because the people don’t actually own the spot. If these spots were purchased and then turned into an auction, I think there would be better case to continue this practice. In order to auction something, I think you at least have to have some sought of ownership of the item.