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Cycle for Hire

Just grab it for 30 minutes

For those who haven't already know, London embarked on this ambitious public cycle sharing project last year (July 2010) - The Barclays Cycle Hire. It has not been such an amazing scheme though it was launched with great fanfare. A friend of mine who came down from Cambridge (land of bicycles) recently was using it and to his horror, the pricing system used charges users at an increasing cost for each additional 30 minutes of use (or part-thereof) - because he got ripped off (about £6 I reckon) just by turning in the bike a couple of minutes late. This doesn't seem to match economics theory about demand, and does that also mean that they'll be losing money for not adhering to the law of economics?

Demand for goods are supposed to be inversely related to the marginal cost of consuming an additional unit of good. If you look at the pricing carefully, you would realise the following pattern:

1st 30mins - Free
2nd 30mins - £1
3rd 30mins - £3
4th 30mins - £2
5th 30mins - £4
6th 30mins -£5
next 180mins - £20

The marginal cost is increasing (barring the 3rd & 4th 30min, which probably is just an attempt at tricking customers or a pricing glitch). The point is that this scheme is not about profit maximizing but simply to break even. The main purpose is for the city to be 'greener' and to create a critical mass of cyclist in the city so that motorist will start being more careful on the roads. At the same time, the pricing is a means of discouraging long journeys or long usage so that the turnover of bikes are fast and more people gets to use it. My friend from Cambridge ought to realise that hiring a bike in the city is different from owning one in Cambridge. And he needs to recognize the incentives of those who set up the scheme, not just his own interests.

Yet they are currently not making enough money to break even. My suggestion; to raise the access fee to £2 and to provide free usage up to 1 hour, then charge £1 on usage up to 1.5 hours. And increase the marginal cost of each 30mins usage by 50p. For an operation that seeks to break even but fail to do even so, you need to expand the usage base and that is through making the initial couple of hours cheaper. Nothing goes cheaper than being free (unless you want to pay people to use it) so let the free minutes run longer, compensate that with a top up of access fee. Then reduce the rate of increase in marginal cost but let it run further and longer. This would increase usage and though I'm unsure if the capacity of the system (I know the full scale system would have 6000 bikes) would allow it to cope.