Microeconomics Question from Walter E. Williams:Edit
Why do shopping center developers try to purchase as much of the adjacent land as possible?
To internalize the externalities. For example, The cost of mall parking for customers is internalized into the pricing structure of the mall rent. Shoppers will pay a higher price for goods purchased at stores which are subsidizing the parking. Nearby stores will pay higher rental rates due to the proximity of ‘free parking,’ potentially creating windfall profits for the owner of those nearby stores. If the windfall profit enjoyed by the owners of commercial land adjacent to the shopping center parking is large enough, then the shopping center owner will purchase the additional land in order to internalize the externality.
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