Tech startup Haystack has developed a controversial solution to the stressful challenge of finding an open parking meter in congested areas. This smartphone app allows those leaving a parking space to alert other Haystack users in the area of their soon-to-be-open spot. To secure this meter (i.e., have the parked car driver wait until they arrive), users pay a fee of $3 (75 cents goes to Haystack while the incumbent “parker” pockets $2.25). Haystack has stirred up controversy among city officials and drivers alike.
We asked Rafi Mohammed, a pricing strategy author and consultant, for his thoughts on the app.
Q: From a pricing perspective, is Haystack a good idea?
A: Absolutely! Haystack provides a solution to a key market failure in popular parking areas: Meter prices are too cheap, which results in excess demand. …
A private for-profit garage in downtown Boston, for example, charges $12 for the first hour and then scales rates up to $32 for 24 hours. Meanwhile, public parking meters located directly in front of this garage run $1.25 an hour. As a result, drivers seeking a meter circle around (.and around) until they “luck out” by getting a below-market priced parking spot. Haystack is simply providing an arbitrage solution to a market failure created by poor city regulation.
Q: But is this fair?
A: It’s axiomatic for a secondary resale market to emerge for any product that is priced below-market. Examples of this are in-demand sporting or music events that are routinely resold at higher prices through the scalper market.
The bigger question is whether meter rates should be so low that it incentivizes people to drive into the center of town (instead of taking public transportation) and then incur the time, frustration and extra gas to find a cheap parking spot. …
In other words, though, is it a right of all citizens to have access, albeit inefficient access, to rock-bottom priced parking? I don’t think so – I vote for jacking up meter prices and investing in public transportation improvements.
And when you think about it, Haystack represents an incredible value to parking spot seekers. A $3 fee secures, for instance, $1.25 an hour parking in Boston instead of paying $12 at a garage.
Q: So what should local governments do about Haystack?
A: Haystack exists because city officials have done a poor job of pricing parking spaces. Instead of needlessly obsessing on Haystack, cities should start dynamically pricing parking meters based on demand.
(Gretchen Gavett is an associate editor at Harvard Business Review.)
