Why Free Rides on the Milwaukee 'Hop' Streetcar Are a Bad Idea

Milwaukee recently announced that, for the first year of operation, there will be no charge to ride the streetcar line now known as “The Hop.”

The arrangement was made possible the Potawatomi Hotel & Casino, which is paying $10 million for 12 years of operation in exchange for naming rights.

It’s one way to increase ridership on a new system, but at Urban Milwaukee, Jay Bullock writes, “free rides for a year is a terrible, terrible idea.”

Bullock attributes his opinion to the American Red Cross, free doughnuts, and an economic concept known as “categorical change,” which is psychologically distinct from a change in price, at least in the minds of consumers.

“In World War II, the Red Cross offered free coffee and donuts to American soldiers overseas. They charged soldiers from other Allied nations a quarter a donut, though, so there was some animosity as you might expect. The War Department kindly asked the Red Cross to charge American soldiers, too, and the soldiers flipped out.”

Or, as one economist writes, “It turns out that people typically overreact to price or income changes within an expenditure category.”

The city is likely anticipating decreased ridership after the free year, but, asks Bullock, “[W]hat if it’s not some drop-off, but a deep, deep dive? With your riders now super angry that you started charging?”

The author, in the end, raises a very modern example.

“Imagine, for example, if Facebook suddenly announced it would cost $10 a month. Well, I tell you what, I bet MySpace would come roaring back!”