Journal of Real Estate Finance and Economics, 27:3, 321±333, 2003
# 2003 Kluwer Academic Publishers. Manufactured in The Netherlands.
Inter-Center Retail Externalities
LUIS C. MEJIA
Fannie Mae, 3900 Wisconsin Avenue, N.W., Washington, D.C. 20016
MARK J. EPPLI
Department of Finance, Marquette University, P.O. Box 1881, Milwaukee, WI 53217
This paper empirically examines inter-center externalities in regional shopping centers. Speci®cally, we use a
non-linear retail share model to measure the impact that department store size and image in subject and
competitive centers have on subject center in-line retail sales. Our ®ndings reveal that department store size and
image attributes have a signi®cant and non-linear impact on subject center sales. More importantly, the results
show that the effect of department store fashion image dominates that of department store size.
Key Words: inter-center, inter-store, retail, shopping center, mail, sales, market share
The retail real estate literature broadly recognizes the existence of inter-store externalities
in enclosed shopping centers. Brueckner (1993), Gatzlaff et al. (1994), Eppli and Shilling
(1995), and Miceli and Sirmans (1995) all argue that the presence of department stores
bene®t in-line retailers in enclosed shopping centers by creating a customer spillover
effect. This research implies that pro®t-maximizing shopping center developers/owners
should maximize inter-store externalities to attain optimal in-line retail sales and rents.
Inter-store externalities are also discussed in the economics and marketing literatures.
The economics literature usually explains external economies through size agglomeration.
Gabszewicz and Thisse (1986), Dudey (1993), and Pashigian and Gould (1998), for
example, describe inter-store externalities as a bene®t of store clustering. In this view,
store clustering reduces uncertainty associated with consumer search, where department
stores provide the critical mass for the ef®cient clustering of retailers in enclosed shopping
centers. The marketing literature takes a different view, explaining external economies
through department store fashion image. Nevin and Houston (1980), Keller (1993), and
Simon and Sullivan (1993), among others, ®nd that department store brand name
recognition is of critical importance to in-line retailer performance.
While the real estate, economics, and marketing literatures broadly recognize the
importance of size and image externalities within an enclosed shopping center (i.e., inter-
store externalities), the literature narrowly addresses the effect of size and image