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Some real estate economists have argued that anchor stores (such as Macy's and Bloomingdales) in shopping malls create significant externalities for overall sales
Some real estate economists have argued that anchor stores (such as Macy's and Bloomingdales) in shopping malls create significant externalities for overall sales. Comment on the nature of this externality, and suggest a policy/strategy to allow shopping malls to internalize this strategy.
Expert Solution
In order to complete this assignment, I recommend that you read some articles on this subject. I found a couple on the Internet.
CONTRACTS, EXTERNALITIES, AND INCENTIVES IN SHOPPING MALLS by Eric D. Gould, B. Peter Pashigian, and Canice J. Prendergast is available at
http://economics.huji.ac.il/facultye/gould/gould_pashigian_prendergast_restat2005.pdf
The article discusses how anchor stores attract sufficient business as to justify lower rents. "On average, anchor stores occupy over 58% of the total leasable space in the mall and yet pay only 10% of the total rent collected by the developer," the article reports. But because the mall developer reaps additional rent when sales reach a certain threshold, this is a good deal for everyone involved. This type of externality could be considered a positive externality: the anchor store generates business for the other stores, without any cost to itself.
SHOPPING CENTERS: CROSS-STORE PATRONAGE, COMPARISON SHOPPING, AND INTERNALIZING EXTERNALITIES by Charles C. Carter is available at http://www.kreaa.org/AsRES/doc/Carter%20Charles(D4).doc
This article discusses how shopping malls can internalize the positive demand externalities with different store arrangements, and should be helpful in answering the second part of your question.
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