The analysis of demand and supply factors in retailing using a disequilibrium model

In this paper we use a disequilibrium model to explain differences in floorspace productivity, measured as sales per square metre, among individual retail establishments. In the earlier stages of our research in this area the demand was usually assumed to be high enough for a shopkeeper to maximize his profits. In the present paper we assume that situations may occur in which demand is not high enough. As a result an endogenous switch (unknown sample separation) between supply and demand regimes is incorporated in the model. The purpose of this paper is twofold. First, we estimate an existing model in this area for four shoptypes, to gain a better insight in disequilibrium situations in the retail trade. Second, we incorporate additional explanatory variables in the demand equation to account for some elements from the marketing mix, like advertising, assortment composition, the level of service and environmental characteristics