Retail Dynamics Under Financial and Regulatory Constraints

Paper Session

Friday, Jan. 6, 2017 3:15 PM – 5:15 PM

Sheraton Grand Chicago, Ontario
Hosted By: American Real Estate and Urban Economics Association
  • Chair: John Clapp, University of Connecticut

Shopping Center Investment With Tenant Incentive Contracting Under Financial Constraints

Peng (Peter) Liu
Cornell University


Investment under uncertainty is one of most critical decisions facing by corporations. The recently financial crisis has highlighted the importance of financial constraints to firm’s investment decision. We model a typical shopping center that contains both anchor tenants and in-line or mall tenants. To align incentives with the tenants, the center owner normally uses a percentage lease contract. On the other hand, in-line tenants require a co-tenancy clause such that if the anchor leaves the center, the inline tenant pay no rents. The model is calibrated using a sample of shopping center leases.

Dynamic Franchising Decisions

Nathan Yang
McGill University
Mitsukuni Nishida
Johns Hopkins University


We develop an estimable dynamic oligopoly model for retailing, in which forward-looking firms trategically choose expansion plans taking into account of the costs and revenues of franchising and corporate outlets. We estimate this model in the market for convenience-store industry in Japan. First, we demonstrate noticeable differences in expansion strategies across ownership types. Second, we confirm that franchisee-run outlets generate higher revenues, all else held equal, than their corporaterun counterparts. Third, our sunk cost estimates reveal that it is more costly to open and close franchisee-run outlets than corporate-run outlets, while at the same time, franchisee-run outlets enjoy lower fixed operational costs. Finally, our counterfactual analysis using the estimated model presents a salient connection between preemptive motives and corporate-based expansion, which offsets the inferred revenue and cost-based benefits of franchisee-run expansion.

Does Entry Regulation of Big-box Stores Protect the Retail Sector? Evidence from Store Cap Ordinances in the U.S.

Tingyu Zhou
Concordia University


Since the rapid growth of big-box retailers in 1990s, many local governments and municipalities have enacted store cap ordinances (SCOs) to constraint store sizes in order to prevent entry of big-box retailers and to protect local retail business. By exploiting SCOs introduced in different municipalities, at different periods of time and with different levels of restrictiveness, I analyze the effects of entry regulation on the retail sector in the US. I address the endogeneity problem by constructing instrumental variables using political composition and the geographic and time pattern of the passage of SCOs. My findings suggest that, in contrast to the objectives of these regulations, the retail sector was actually harmed by the creation of entry barriers.

Retail Marijuana Establishments and Commercial Real Estate Spillovers

Erik B. Johnson
University of Richmond
Sriram Villupuram
University of Texas-Arlington


We examine the impact of two waves of marijuana establishment openings in Denver Colorado. We find that a typical retail marijuana establishment, either medicinal or recreational, will have significant negative impacts on commercial rents within a half-mile radius. Preliminary results show this effect to be between a 5and 15 percent loss in rent relative to counterfactual locations. We produce these estimates using an array of plausible counter factuals and test for identification through the use of a pseudo treatment of coagglomerated industries. Results support the hypothesis that retail marijuana establishments have a substantial negative spillover effect on neighboring commercial properties.
Anthony Pennington-Cross
Marquette University
Sergio Garate
Pennsylvania State University
Jim Shilling
DePaul University
Avis Devine
University of Guelph
JEL Classifications
  • R0 - General
  • R3 - Real Estate Markets, Spatial Production Analysis, and Firm Location