Lynne Kiesling
… and sitting at argo tea on Armitage in Chicago, catching up and enjoying a lovely cuppa along with wireless.
When we flew into Midway from Baltimore last night I noticed something that I didn’t see on the marquee over the street when we left: between 23 December and 4 January, hourly parking at the airport is reduced from $3/hour to $2 for the first two hours. Interesting price change. The opportunity cost for the city of Chicago, which runs Midway (and O’Hare), is the foregone $1/hour for those who have to wait an hour or less for their loved ones, and $3 for those who have to wait between one and two hours. I would argue that the offsetting substitution/price effect, that quantity demanded would rise as a consequence of the price reduction, is minimal because the demand for parking in that time period is particularly inelastic. Furthermore, there’s no ad campaign or anything to let people know that parking is discounted during the holiday season, which makes it hard for the substitution effect to kick in. So as a first approximation it’s a pretty clear surplus transfer from the City of Chicago to airport customers.
Why would they do that? The City of Chicago is a monopolist in the operation of airports, and the parking therein. Why not price like a monopolist? And particularly during a time of year when demand is so inelastic for 1-2 hour parking, why price discriminate in the opposite direction of the elasticity change?
We could offer a lot of hypotheses — governments are not profit-maximizing organizations, for better or worse, and so on. Other than the hypothesis that the City of Chicago wants to build some goodwill with Chicagoland users of Midway, the only logical one to me is that the arrivals deck is extremely congested at Midway, so reducing the flow of cars through there is a benefit. In addition, if your party has not arrived you can’t sit, and the circling route at Midway is particularly awkward, so anything you can do to induce people out of the arrivals deck and out of circling is a good thing. In fact, those are the people who are going to be most likely to have the substitution effect kick in — they arrive and find that their party is delayed, circling is a pain in the butt, but it’s only $2 to park for 2 hours.
I’m sure there’s more interesting analysis to be done beyond what I’ve mentioned, so let’s hear it!