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Shopping externalities and retail concentration: Evidence from Dutch shopping streets

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  • Koster, Hans
  • Pasidis, Ilias
  • van Ommeren, Jos

Abstract

Why do shops cluster in shopping streets? According to theory, retail firms benefit from shopping externalities. We identify these externalities for the main shopping streets in the Netherlands by estimating the effect of footfall – the number of pedestrians that pass by – on store owner’s rental income, which is a composite of the effects of footfall on shop rent and on vacancy rates. We address endogeneity issues by exploiting spatial variation between intersecting streets. Our estimates imply an elasticity of rental income with respect to footfall of 0.25. We find that a shop’s marginal benefit of a passing pedestrian is € 0.005. It follows that subsidies to retail firms that increase with the levels of footfall generated by these shops are welfare improving. The optimal subsidy to store owners is, on average, 10 percent of the rent, but is higher for retail firms that generate high levels of footfall. Although explicit subsidies are controversial and difficult to implement, our results seem to justify current policy practices which cluster shops by pedestrianisation of shopping streets or by providing subsidised parking for shoppers.

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  • Koster, Hans & Pasidis, Ilias & van Ommeren, Jos, 2017. "Shopping externalities and retail concentration: Evidence from Dutch shopping streets," CEPR Discussion Papers 12216, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:12216
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    Cited by:

    1. Gilles Duranton & Diego Puga, 2020. "The Economics of Urban Density," Journal of Economic Perspectives, American Economic Association, vol. 34(3), pages 3-26, Summer.
    2. Cheshire, Paul & Hilber, Christian A. L. & Montebruno Bondi, Piero & Sanchis-Guarner, Rosa, 2022. "(In)convenient stores? What do policies pushing stores to town centres actually do?," LSE Research Online Documents on Economics 118055, London School of Economics and Political Science, LSE Library.
    3. Gokan,Toshitaka & Thisse,Jacques-François, 2024. "Are spatial differentiation and product differentiation substitutes?," IDE Discussion Papers 943, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    4. Yuhei Miyauchi & Kentaro Nakajima & Stephen J. Redding, 2021. "The Economics of Spatial Mobility: Theory and Evidence Using Smartphone Data," NBER Working Papers 28497, National Bureau of Economic Research, Inc.
    5. Martijn I Dröes & Hans R A Koster, 2023. "A world divided: refugee centers, house prices and household preferences," Journal of Economic Geography, Oxford University Press, vol. 23(1), pages 51-90.
    6. Kawaguchi, Daiji & Kawata, Keisuke & Okamoto, Chigusa, 2024. "Urban Redevelopment Program and Demand Externality," IZA Discussion Papers 16925, Institute of Labor Economics (IZA).
    7. Ossokina, Ioulia V. & Svitak, Jan & Teulings, Coen N., 2024. "The urban economics of retail," Regional Science and Urban Economics, Elsevier, vol. 108(C).
    8. Formánek, Tomáš & Sokol, Ondřej, 2022. "Location effects: Geo-spatial and socio-demographic determinants of sales dynamics in brick-and-mortar retail stores," Journal of Retailing and Consumer Services, Elsevier, vol. 66(C).
    9. Sung Hyo Hong & Junhong Im & Gyoungju Lee, 2023. "Industry Structure of Commercial Districts and the Impact of COVID-19," Sustainability, MDPI, vol. 15(11), pages 1-11, May.
    10. Ioulia Ossokina & Coen Teulings & Jan Svitak, 2017. "The urban economics of retail," CPB Discussion Paper 352.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    11. Song Zhang & Mark Duijn & Arno J. Vlist, 2023. "Tenant Mix and Retail Rents in High Street Shopping Districts," The Journal of Real Estate Finance and Economics, Springer, vol. 67(1), pages 72-107, July.
    12. Daiji Kawaguchi & Keisuke Kawata & Chigusa Okamoto, 2024. "Urban Redevelopment Program and Demand Externality," CIRJE F-Series CIRJE-F-1227, CIRJE, Faculty of Economics, University of Tokyo.
    13. Federica Daniele & Mariona Segu & David Bounie & Youssouf Camara, 2022. "Bike-friendly cities: an opportunity for local businesses? Evidence from the city of Paris," THEMA Working Papers 2022-09, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
    14. Aizawa, Hiroki & Kono, Tatsuhito, 2024. "Quantitative evaluation of benefits of place-based policies for retail agglomeration," MPRA Paper 120113, University Library of Munich, Germany.
    15. Stuart S. Rosenthal & William C. Strange, 2020. "How Close Is Close? The Spatial Reach of Agglomeration Economies," Journal of Economic Perspectives, American Economic Association, vol. 34(3), pages 27-49, Summer.
    16. Maral Taşcılar & Kerem Yavuz Arslanlı, 2022. "Forecasting commercial real estate indicators under COVID-19 by adopting human activity using social big data," Asia-Pacific Journal of Regional Science, Springer, vol. 6(3), pages 1111-1132, October.
    17. Klingen, Joris & van Ommeren, Jos, 2020. "Urban air pollution and time losses: Evidence from cyclists in London," Regional Science and Urban Economics, Elsevier, vol. 81(C).

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    More about this item

    Keywords

    Retail; Shopping externalities; Rents; Vacancies; Agglomeration economies; Footfall;
    All these keywords.

    JEL classification:

    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General
    • R33 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Nonagricultural and Nonresidential Real Estate Markets

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