Most urban parking structures/lots in the US seem offer so-called "early bird" discounts for parking, where a substantially discounted flat rate applies to customers entering before a certain cutoff time (typically 9 or 10 AM) and exiting before late evening (typically 6 or 7 PM).

The practice is nearly universal, so there must be some economic advantage to it (unless the various players are locked into some kind of weird Nash equilibrium).

My best guess is that this is a kind of price discrimination targeting people commuting in to work, but price discrimination usually soaks business customers in order to offer discounts to discretionary customers, and this situation is the opposite, so I'm not sure that's it.

It could be that it's especially valuable to kick out a large number of vehicles by early evening so that a "second crop" of customers can be brought in. But evening rates (at least when no special events are being held nearby) are also typically discounted.

It could also relate to minimizing turnover costs and traffic congestion. But turnover costs for a parking lot (especially an automated one) seem to be a tiny fraction of the overall cost.

And it could be the result of a price war between suppliers. Knowledge of a particularly cheap nearby lot would tend to spread quickly among coworkers.

Is there a definitive slam-dunk reason these discounts exist?

EDIT: Another guess is that commuters are high-knowledge customers and shoppers are low-knowledge customers and so it makes sense that the latter would tend to get charged more.

up vote 3 down vote accepted

There seems to be some research on price discounting. For example, this paper studies two forms of dicounting, last-minute discounting and early-bird discounting, in settings with monopoly, duopoly and competitive markets. They propose a model and run some experiments. Some excerpts from this paper:

There might be many reasons for such a pricing policy [Early-Bird Discounting]. Early bookings for example reduce uncertainty for airlines, who might be willing to forgo some profit in order to reduce this uncertainty. Introductory pricing in markets with network externalities might be another reason. Here we want to investigate intertemporal price discrimination between different customer groups, who enter the market at diferent points in time. One might think of holiday makers versus business travellers in the market for airline tickets. Holiday makers usually plan ahead and enter the market for a particular flight quite early, while business travellers often cannot plan well in advance. Additionally, the reservation price of business travellers is much higher than that of holiday makers. A monopolist airline will try to persuade as many low- valuation customers as possible to book early, such that it can charge higher prices later when the high-valuation customers have entered the market.

This is also interesting:

When customers with lower valuations for the good start searching earlier for cheap prices than consumers with higher valuations then it is possible to sell to these customers at early-bird discount prices, while the high valuation customers who enter later can be charged higher prices. The main objective of the monopolist is to get the low-valuation customers out of the market before the high-valuation customers arrive. The low-valuation customers accept early, as they anticipate that the prices will go up over time.

They conclude that:

In the early-bird scenario competition even seems to enhance the ability to price discriminate initially, while with increasing experience this advantage is eroded. [...] The monopolists had much less pricing power than predicted by standard theory, while the duopolists - also contrary to the prediction - were able to retain at least some pricing power. The most striking advantage of competition is the increase in total welfare.

Perhaps not entirely pertinent to the case of parking, this entry in The Economist claims that early-bird tickets are useful in events like concerts to build up a minimum mass of goers:

T in the Park, a large pop shindig held in Scotland, pioneered the practice of offering discounted “early bird” tickets to build buzz.

Some reasoning:

Incoming "Early-bird" discounts relate to a time window where quantity supplied is high - parking lots are empty waiting for today's customers. Since on the other hand quantity demanded is also high in this time window, it is natural to attribute the incoming early-bird discounts to price-competition between suppliers that attempt to attract as much as possible from the high quantity demanded.

Outgoing early-bird discounts on the other hand, appear indeed to be an attempt to free capacity for a new wave of evening customers (the fact that evening prices are also discounted is another matter). Suppliers are better off securing the flat fee early in the morning, and then they care more for new revenue from evening clients than possibly incremental charges to morning customers that leave late. It is also good in terms of customer differentiation and signalling that the parking lot can accommodate also evening customers.

I've always assumed the early cars spend the day blocked in by the later cars. The parking lots would want to get that first row filled up as icing on the cake, then let them sit there through the day as the cars they parked in the accessible ring arrived and left throughout the day.

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