Inter-store externalities and space allocation in shopping centers

This article analyzes the problem of optimal space allocation in shopping centers in the presence of inter-store externalities. In the model, a given store's sales depend on its own space as well as on the space allocated to other stores in the center. The given stores' own sales rise as other stores grow in size because the shopping center is then more attractive to customers. Taking this externality into account, the developer allocates space to the various stores to maximize the shopping center's profit, which equals total rent minus operating costs. The solution to this problem is analyzed under a number of different behavioral assumptions.