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Car Towing 101

In a welcome break from the bank crisis, Tyler Cowen has a fascinating post on the economics of car-towing, inspired by a note from a reader:

I live in Philadelphia, and have noticed one particular company, Lew Blum, seems to have most of the market cornered for towing cars parked illegally in private parking spots. How does one acquire market share? Do the owners of private parking spots pay for having someone like Lew Blum come and tow the cars that are taking their spots? Or does Lew Blum offer money for the right to tow their problematic cars (as they charge the owner of the car $150 to get the car back, and $25 for every day it sits in their lot.) I can imagine rationales for either model. On the one hand, Lew Blum is providing owners of the spots a service by clearing out the vagrants. On the other, he's guaranteed $150+ for every car he tows, so he (and all of his competitors) wants to maximize the number of spots/lots they 'protect', and that competition should drive the 'cost' of the service down to at least $0, if not negative $ (ie paying for the right).

Tyler offers some tentative thoughts...

--Noam Scheiber