An Economics Approach to Fixing the Fare of the Parking Lot Service in Bogotá Using Price Cap Regulation

Abstract

This article presents an application of the Ramsey Pricing approach to establish the price cap or pricing ceiling per minute for the parking lot service in Bogotá (Colombia), using the microeconomic framework for price fixing from a costs analysis (total fixed costs, total variables costs, average total cost, and marginal cost) of the provision of parking lot service in Bogotá. These results were evidenced by means of a dynamic panel data model for estimating total cost functions through generalized method of moments estimators. Also, from the econometric outcome and using the Ramsey Pricing approach and mathematical optimization (comparative statics), I obtained the maximum fare per minute that should pay the consumers of the parking lot service in Bogotá. I conclude that the current maximum fee per minute, paid by parking users, does not cover the fixed costs incurred by firms that provide legally this service in Bogotá.

Acknowledgments

The author gratefully acknowledges Eduardo Bayon and Diego Lomelín for kindly making available the data used in this article and their helpful comments concerning this study.

Notes

1. I used a secondary source of information—the data were provided by City Parking Company. It is a firm legally established in Colombia that is engaged in providing parking service at the major cities of the country.

2. See Mendieta and Perdomo (2008, pp. 13–15), for a review.

3. See Varian (1993, pp. 427–433), Nicholson (2002, pp. 537–542), Cano (2001, p. 45), and Qian et al. (2011, p. 862), for a review.

4. See Campus et al. (2004, chaps. 5 and 6), Loube (1995), Sappington and Sibley (1992), Cowan (2002), and Holguin and Jara (1999), for a review.

5. Total fixed costs (TFC) include the value of rents and commissions on share accounts, administrative costs (including staff on the payroll), liability insurance, utilities, payments for condo management and procurement; while total variables costs (TVC) relate to staff overtime, support staff, maintenance and repairs and electrical installations, adjustments, licensing paperwork, roads and signage, security and communication items, depreciation and amortization, supplies, tickets and cards, and claims incidents.

6. See Greene (2002), Gujarati (2003), Rosales, Perdomo, Morales, & Urrego (2013), Perdomo (2010, 2011), and Perdomo and Hueth (2011), for a review.

7. See Gujarati (2003), Greene (2002), Baltagi (2005), Cameron and Trivedi (2009), and Rosales et al. (2013), for a review.

8. See Arellano and Bond (1991), Chamberlain (1987), Arellano and Bover (1995), and Blundell and Bond (1998), for a review.

9. These places are located in Bogotá and their addresses are as follows: Calle 100, Calle 122, Calle 94, Calle 95, Carrera. 15, Calle 81, Calle 84, Calle 85, Calle 104, and Parque 93.

10. The generalized method of moments estimation of the models was carried out using the Stata (version 11) computer program.

11. Using Derive (version 5) computer program.

12. 15/9,863 = 0.002; 9,863 is the amount of minutes sold per month for a parking lot, it is the mean per day in Table 2 (295,879/30).

13. 10,526/43,200 = 0.24; 43,200 is the amount of minutes in a month (60 minutes _* 24 hours _* 30 days).

Additional information

Notes on contributors

Jorge A. Perdomo

Jorge A. Perdomo is the General Director and Deputy Director of Quantitative Analysis at Teknidata Consultants, Carrera 18 No. 86A-14, Bogotá, Colombia; Professor of Econometrics II, Principles of Mathematics and Transportation Economics at the Department of Economics of the University of the Andes; and Professor of Applied Microeconomics to Projects at the Faculty of Economics, University of Rosario.