Network Effects Drive The Success Of Bicycle Socialism

(cc photo by ericgbrown)

Washington, DC has a bike sharing program called Capital Bikeshare. If you pay an annual membership fee, you can take the bikes out for short-terms at no marginal cost. A longer ride costs you a bit, and non-members can rent bikes on the spot for a fee. Recently they offered a big discount via Living Social and got a ton of new members. DCist wondered at the time if the membership surge would outstrip capacity but now they’re feeling sanguine:

District Department of Transportation spokesperson John Lisle wasn’t too worried about it at the time, though, telling DCist that DDOT had “a plan to expand the system to help meet that demand” which included new stations in Arlington and D.C., some of which would “be installed before the end of the month.” He wasn’t kidding — during a press conference this morning, Mayor Vince Gray and transportation officials announced plans to install for several new stations around the District, including one located right in front of city hall.

This kind of sharing system has the interesting property that if the ratio of members to stations stays constant, then as the number of members increases the value of a membership goes up. That’s because from the perspective of an individual member, a low member:bike ratio has value but so does a high density of stations. If 50 percent of DC residents were Capital Bikeshare members, then maintaining the current number of stations would require there to be stations all over the place. And that would make the whole system much more useful.

That’s not going to happen, of course, but it’s an indication of the kind of benefits that higher levels of population density can have for a city as well as a vindication of the idea of jumpstarting the program with some discounts. This also illustrates an example of a service that’s well-provided by a monopolist. Having multiple competing firms would fragment the network and reduce value.