But should we really charge zippo for parking corporate cars if we suspect that the unused capacity will not be unused forever? What if a new division might come along that wants to rent the five currently unused garage space in the future? Do we then kick out all current parkers? Or, how should we charge this new division if it wanted to rent six spaces? Should we give it the five remaining unused parking spots for free? Presuming that garages can only be built in increments of ten parking spots each, should we build another ten-car garage, and charge it entirely to this new division that needs only one extra parking spot in the new garage? Should this new division get a refund if other divisions were to want to use the parking space— but, as otherwise unused parking space, should we not use the garage appropriately by not charging for the nine extra spaces that will then be a free resource?
When there are high fixed and low variable costs, then capacity is often either incredibly cheap (or even free) or it is incredibly expensive—at least in the short run. Still, the right way to think of capacity is in terms of the relevant marginal costs and marginal benefits. From an overall corporate perspective, it does not matter how or who you charge—just as long as you get the optimal capacity utilization. To the extent that cost allocation distorts optimal marginal decision-making, it should be avoided. In our case, if optimal capacity utilization requires zero parking cost for the old garage, then so be it. Of course, when it comes to the decision to build an entirely new garage, you simply weigh the cost of building the 10-spot garage against the reduced deterioration for 1 car.
Unfortunately, real life is not always so simple. We know that our division managers will not want to pay for it if they can enjoy it for free—so we cannot rely on them telling us the correct marginal benefit. So, would it solve our problem to charge only divisions that are voluntarily signing up for the Internet connection, and to forcibly exclude those that do not sign up? If we do, then we solve the problem of everyone claiming that they do not need the Internet connection. However, we are then stuck with the problem that we may have a lot of unused network capacity that sits around, has zero marginal cost, and could be handed to the non-requesters at a zero cost. It would not impose a cost on anyone else and create more profit for the firm. Of course, if we do this, or even if we are suspected to do this, then no division would claim that they need the Internet to begin with, so that they will get it for free. In sum, what makes these problems so difficult in the real world is that as the boss, you often do not know the right marginal benefits and marginal costs, and you end up having to “play games” with your division managers to try to make the right decision. Such is real life!