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Monday, October 13, 2014

Parking, Prices, and the End of Circling: An Interview with Max Marty

Max Marty is CEO of the start-up Volo, whose app of the same name is designed to let people use their devices to find parking — especially when time really is money. Marty, along with team members Tilman Thederan, James Lee, and Elizabeth Hunker, is attempting to solve parking problems with peer-to-peer networking and dynamic pricing. But the solution is not without controversy.

The Freeman: So take us through it, Max. You’re in the car, say a minute out from your destination. It’s a busy day in a major city. Street parking is scarce. What do you do with Volo?

Marty: It can work a minute out from your destination if you pull over and initiate a search, but it’s best to not use your phone while you’re driving or looking for a parking spot. So the first thing you’d want to do is use it when you’re leaving your point of origin. Think of it as a layer on top of a navigation app, a layer that adds parking to it. Instead of using Waze or Apple maps or whatever, you’d initiate Volo as you leave. You then tell Volo where you’re headed, how far you’d be willing to walk from a parking spot, and how much you’d pay to have a spot open up as you’re arriving. You then initiate the search, and while you’re driving Volo is asking everyone around your destination if they’re going to be leaving when we calculate that you’ll be arriving. If Volo finds you someone leaving as you’re arriving, it reroutes you to their precise parking spot — wherever it happens to be — and coordinates with both parties to make sure the outbound driver is at their car just as you’re arriving.

The Freeman: So it seems like people are renting and leasing parking spots. Don’t these “belong” to the public (read: municipalities)?

Marty: The person, it could be any of us — any user who happens to be parked anywhere — isn’t selling you a parking space. They don’t own the parking space. They don’t even rent it, unless you consider a meter renting. What they’re doing is coordinating with you to leave precisely when you’re arriving. If someone else pulls up just as you pull up, you can cancel the pairing and no money exchanges hands. The point is fairly simple: there is often too much demand and not enough supply of parking in a given area. Why? Econ 101. A lot of parking is operating entirely outside of the price mechanism. Creating a price mechanism, even one that merely moves money between users inside of the system itself, can alleviate the problem by helping people figure out who values a particular spot at a particular time the most in terms of its opportunity cost.

The Freeman: So who is objecting to this technology? And what do you have to say to them?

Marty: There are two groups who are objecting that we’ve run into. One group who worries about what I’ve called “artificial squatting,” and another group who doesn’t care what positive consequences accrue from such a system, because they feel that they won’t reap the benefits and instead will have to now pay for something they’ve been getting “for free” until now.

Squatting — let’s call it natural squatting — is a very legitimate concern, and it’s really annoying. It’s basically when a person sits around in a parking spot longer than they should. I think there was an episode of Seinfeld where someone left their car in a parking spot for two years for fear of moving it, because, you know, you don’t want to let some other bastard take it.

Artificial squatting, on the other hand, is a situation in which the price mechanism induces someone to wait for you on a parking spot longer than they would otherwise. As far as I know, of the companies trying to find a way to create a two-sided exchange, we’re the only company with the kind of market-making mechanism designed to make artificial squatting completely unprofitable.

It’s a bit much to go into here (I go into detail about it on my blog), but suffice to say it’s a combination of how long pairings last and how we compete down the price of pairings. You just can’t make enough per hour to justify waiting around for very long outside of when you’d naturally leave.

As for the other objection about “free parking,” there is not now, nor has there ever been, “free parking.” Not only do we pay a personal price every time we try to park in a crowded parking lot in terms of our wasted time, gas, accident rate (looking at parking spots instead of the road is distracting and dangerous), frustration, and so forth. But, there are a ton of negative externalities that circling and congestion (the natural result of using your time instead of a price) cause. For example, less walkability, less efficient mass transit, pollution, etc. The economist Donald Shoup goes into great detail on this point.

The Freeman: Allowing people to unlock the value in their own capital, or in underused goods and services, seems like a no-brainer. But many of these technologies — despite their widespread benefits — are an affront to old systems. How do you think sharing-economy plays will eventually unentrench entrenched interests?

Marty: I think there are two important components. First, we need to try out new, weird-sounding ideas. Because, though some of them will be duds, some won’t. And we don’t know which weird ideas are going to succeed at making our economy more efficient, and all of us will become more prosperous later. For every Airbnb and Uber out there, there are a hundred companies trying similar models that didn’t turn out to be the right one.

Second, we need to allow the old method of doing things to pass if it turns out to be more wasteful, of lower quality, etc., than the new method. Unfortunately, there is no easy solution here, but a lot of it comes down to what voters demand their politicians do — or don’t do — about a given situation. The only reason we’re seeing reform in the hotel and taxi sectors is because so many people are rabidly in favor of the new models, and politicians and regulators are being forced to pay attention to the masses rather than the special interests. Thank goodness for that.

The Freeman: It seems like this kind of technology has a plethora of applications beyond just parking. I suppose if you knew about them, you wouldn’t advertise it here (you’d go make money). But can you give us a glimpse?

Marty: I’m a huge econ geek, so I’m going to nerd out on this question a bit. If you think about it, parking isn’t really fundamental to our model. Volo is simply a way to exchange value with someone at a particular point in space and time. Anything you can think of could be exchanged on Volo. The key is that we’re reducing the transaction cost for transactions that would otherwise be hard to coordinate. We do this by intelligently figuring out when two people are going to happen to intersect, and when one has something the other wants. The possibilities are endless if you think about it. And I hope people do! In fact, I hope people come up with these ideas spontaneously while using Volo.

The Freeman: In general terms, what is it like to start a Silicon Valley tech business? Is there any glamour to it? Do you have a life?

Marty: Running a tech business is like riding a rollercoaster. Lots of highs, lows, and the occasional lulls, with the difference being you don’t know when the ride is going to end. You have to be more than okay with that — you have to embrace it. If that sounds glamorous, then it is; if it sounds like a nightmare, then that’s what it’ll be. As for a life? Well, you learn to mix your life and your start-up — willingly or unwillingly in some cases.

The Freeman: Max Marty, thank you. And good luck with your new venture.

Marty: Thanks to you! And keep up the good work.

  • The Freeman is the flagship publication of the Foundation for Economic Education and one of the oldest and most respected journals of liberty in America. For more than 50 years it has uncompromisingly defended the ideals of the free society.