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For parking management companies and city administrations, parking forms an important source of revenue. Yet, many operators find it difficult to determine whether their parking facility is performing at its optimum, managing it without a mechanism that realizes its full value. The problem is that unlike other services, market-driven pricing has never been applied to parking. In the absence of a good way to measure demand and adjust prices according, operators have traditionally relied on (unorganized) historical data to set prices. However, ascertaining future demand is impossible without the help of technology. Read the pros vs. cons of dynamic pricing for parking.

With parking sensors and software that analyzes the frequency of use and availability of space, it is possible to modify pricing in real-time. Dynamic pricing refers to technology-enabled pricing based on real-time changes in demand and supply. Dynamic pricing in parking is believed to one of the cornerstones of smart parking, representing the next logical step in the emerging smart city framework.

The pros

Popularized by ride-hailing cabs such as Uber, dynamic pricing can be used by parking operators to maximize revenues, optimize capacity utilization, and introduce efficiencies in the unorganized parking industry.

What makes maximization of revenue possible? When parking lot operators can charge a premium for parking spaces during times of high demand, they can offset losses, if any, during lean periods when lots are empty. In addition, dynamic pricing for parking optimizes capacity utilization as reduced fees during low demand periods incentivizes motorists to utilize vacant parking lots. Moreover, by following the laws of economics in pricing, parking lot operators can enhance efficiencies in parking management by matching prices with current demand and supply. In other words, the drag on parking lot operations due to static pricing can be eliminated and efficient parking systems put in place.

Drivers are also likely to appreciate the fact that the fee they are paying is based on the actual value of the space instead of some arbitrary number. Those who typically park in low-utilization lots would no longer have to pay more than what they should as prices go down.

The cons

Having said that, there are some drawbacks to the dynamic pricing for the parking system. For one, it can result in misallocation of resources wherein increased peak hour fees can discourage riders from parking, leading to empty lots.

It can also lead to cross-subsidization of parking lots wherein premium rates during high demand effectively subsidize low rates during lean periods. However, this is contentious since parking experts believe that the inherent equilibrium price discovery of dynamic pricing algorithms would even out these rough edges.

Perhaps the most glaring criticism of dynamic pricing is that it violates the social responsibility and ethical element of parking. By pricing higher during peak demand, it can deter motorists from parking though they might be in dire need of finding parking spaces. Thus, they might be forced to shell out more even if they cannot afford it. In other words, dynamic pricing can lead to a “robbing Peter to pay Paul” outcome which has negative social responsibility connotations.

Conclusion

Despite these drawbacks, dynamic pricing for parking is an idea whose time has come. By tweaking algorithms to take into account the drawbacks, this concept can introduce synergies between pricing and the laws of supply and demand.

Its benefits are set to grow exponentially in the future. As the era of connected cars dawns upon us, sensor-based networks will be key to the success of dynamic pricing. With the world moving towards intelligent transportation, dynamic pricing for parking is the natural step towards efficient urban management.