Large stores and contracting for mall locations
Issue Date
2012-04-18Author
Sabarwal, Tarun
Watson, Randal
Type
Working Paper
Published Version
http://EconPapers.repec.org/RePEc:kan:wpaper:201007Metadata
Show full item recordAbstract
We analyze the contracting problem between a shopping mall and
potential anchors (large stores) in a market where consumers with high
search costs must choose shopping destinations prior to learning prices.
Our model incorporates the interaction between contracting and asymmetric
firm sizes into a framework of competing platforms. The mall is
but one of three potential destinations in the market, complemented by
a stand-alone location for a large store, and a competitive ‘downtown’
centre occupied by small retailers. As in Dudey’s (1990) homogeneousgood
framework, consumers choose to visit only one of these locations,
based on expected prices at each site. A game of sequential contracting
for slots at the mall determines the equilibrium distribution of firms
across locations based on their costs and relative bargaining power.
We analyze the effects of three policies. First, prohibition of the
stand-alone site can increase social welfare, by alleviating excess entry
and countering inefficiencies in contracting between the mall owner and
potential anchors. Second, subsidies for downtown may push prices at
the mall closer to socially efficient levels, but can never increase welfare
if the market is initially dominated by a stand-alone big store.
A subsidy’s effect on the equilibrium size distribution of mall tenants
depends on the concavity of demand. Third, a merger between two big
stores can increase social welfare, in part by ameliorating a problem
of externalities on non-traders in the contracting with the mall owner.
Merged anchor stores that operate at stand-alone sites may retain occupancy
of mall space for purely strategic reasons, in order to deter
entry.
Description
Sabarwal, Tarun and Watson, Randal, (2010), Large stores and contracting for mall locations, No 201007, WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS, University of Kansas, Department of Economics.
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