City must recognize towing companies’ monopoly

Towing services charge excessive fees to release impounded vehicles, and it’s been going on for years. It’s time someone puts a boot on their ridiculously inflated fees. Locally, the stories have been written and rewritten for years, and a common theme in the stories is students’ concern over the price of towing.

In 1997, The Minnesota Daily printed a story in which Jennifer Aulwes, then a junior in the College of Human Ecology, voiced her displeasure. “They’re taking advantage of students,” said Aulwes. “I always wonder why they need to charge such an extreme amount of money.” When that story was written, Gopher Towing reportedly charged $125 to retrieve a car from the impound lot. Today, that price is $201.25.

According to the Federal Reserve Bank of Minneapolis, something that cost $125 in 1997 should only cost $139.64 in 2002 as a result of inflation. Clearly, Gopher Towing and the rest of the towing services, which all charge similar rates, have increased their rates far beyond simple inflation.

And why shouldn’t they? A rational firm will increase its prices to maximize profits, and since towing companies have a virtual monopoly – once they’ve impounded a vehicle, the owner can’t exactly shop around – they can charge unnaturally high costs. What’s needed, as with any monopoly, is government regulation. The Minneapolis City Council needs to step in and set prices based on a competitive market. The government has long set the prices for natural monopolies. In doing so, it determines what the product or service would cost if it were sold in a competitive market. In effect, this lowers the price to slightly above cost, saving consumers money.

To get an idea of the disparity between the current prices and what they would be in a competitive market, one need look no further than the Minneapolis city impound lot. It charges $125 to release a vehicle, considerably less than the private companies. Yet the city contracts out the private companies to do its towing. It selects which service it’s going to use by letting local companies bid for the contracts.

That specific market is competitive. Wrecker Service is one of the two companies that won a city contract. It is also one of the companies that tows vehicles around the University. And though it provides the same service for the city, which charges $125, Wrecker Services charges $195 plus $25 per day to release vehicles it’s impounded in response to a private complaint. The city needs to treat towing companies like any other monopoly. These companies have already cheated too many residents. City Council members must intervene and establish rates that are fair for the consumer.