[ee8aq3g5c6]

Hmm, it seems this would only be true of all residents within walking distance of the empty buildings already have all of their desires catered to by a storefront you own. I am really skeptical that this could be true in a place like Manhattan where the supply of commercial space is highly constrained.

This seems more like a price stickiness issue.

[tacostakohashi]

Your model seems to involve people with no desire to save money, willing to spend every last cent if only the right shop would open on their block.

In the real world, people have a certain, finite amount of disposable income, which is constrained by their other expenses as well as their desire to save for the future (retirement, etc).

[ee8aq3g5c6]

I edited my post to remove a clause like "already have all of their desires catered to [or they have no money left]". I want to make that clear so readers of you comment have full context.

My response would be that unless you have, say, a restaurant for every cuisine in your portfolio, you have an opportunity to get a bigger share of restaurant spending by opening a restaurant of a different cuisine (which will compete with restaurants in buildings other landlords own).

And this will probably have an ultimate effect of lowering prices and increasing consumption. But that doesn't have to be true for it to make sense to open a competitive restaurant.

[tacostakohashi]

Hey thanks for that note, I look like less of an idiot now :)

The thing is, neither the landlord nor the restaurant tenants care about market share (although it's true that it could be increased by opening a new restaurant of a novel cuisine). As for lowering prices, that would be something they're actively trying to avoid. As much as they'd probably like to increase consumption, the number of residents in the area is a constant, and they eat at most one dinner per day.

Remember, they're trying to maximize profit, not market share, meals served, resident happiness, etc. It's like asking why there are empty seats in business class on a plane, when the airline could lower the fare and attract more customers, market share, etc? It's true, they could, but they're not trying to maximize the number of passengers (with the associated extra weight, fuel costs, etc). They're trying to maximize profit, and if high fares for a few people and a bunch of empty seats do that better than lower fares, full seats, and a higher fuel bill, then that's great for them.

The empty stores are a documented phenomenon, the only question is why it's like that. If you don't like my theory, another explanation would be interesting to hear... speculating that the situation shouldn't exist, less so.

[ee8aq3g5c6]

I feel that your argument only makes sense if one player controls a majority of the market, so that the majority of sales stolen by the new restaurant come from the same owner's existing restaurants. It's not enough to just own a handful of nearby buildings, you actually have to dominate several blocks. And decide to keep a bunch of that valuable real estate empty instead of converting it to condos.

Here are some possible explanations:

1) Deliberate price-fixing behavior from a majority cartel of owners. A lot of these buildings are owned by publicly-traded REITs. This would be a pretty big conspiracy.

2) Price stickiness. Prices have not caught up to reduced demand. Accepting a lower rent means losing. A version of this is the reason given in the article.

[galdosdi]

> Your model seems to involve people with no desire to save money, willing to spend every last cent if only the right shop would open on their block.

So, sounds like the model should work well for Manhattan then? ;-)