Externality arising from opening a new departmental store.
A study of leasing practices among U.S. shopping malls reported that, on average, department stores paid rent of $2.24 per sq ft. after controlling for differences in sales per sq ft among stores of different types, the study calculated that the average rent for a specialty store was $11.88 per sq ft.
(a) compare the development of a new dept store along an open street w/ one in a shopping mall. In which case are the externalities more likely to be resolved?
(b) Elucidate why shopping malls charge dept stores more lower rent than specialty retailers.
(c) Explain why shopping malls might charge specialty stores a variable rent that depends on sales revenue.