Economic analysis of collecting parking fees by a private firm

The purpose of this paper is to show the possibility of a co-existence of public and private parking management systems even when all the parking spaces are owned by the government. This study focuses on the issue of collecting parking fees by a private firm that has been used by some local governments in Taiwan. We assume that the government behaves as a leader and a private firm as a follower in a Stackelberg three-stage game. At stage 1, the government selects its parking space. At stage 2, the government and the firm set their parking fees simultaneously. At the final stage, consumers (drivers) choose the parking lot between the space of the government and that of the firm by considering the full costs, consisting of the parking fee and the searching (with congestion) time cost. The objective of the government is to maximize welfare and that of the firm is to maximize profit. The model is constructed at first and a simulation analysis is then made. The result supports the strategy of adopting the franchise of collecting parking fees if the private firm is more efficient than the government. Moreover, the government may keep fewer parking spaces and release more parking spaces to the firm under the goal of maximizing welfare.