In business and economics, the term “concession” can signify various concepts depending on the context in which it is used. The term generally encompasses permission or an allowance provided by an entity, be it a business or government, to utilize property, sell goods, or provide services. Below are the predominant definitions and uses of “concession.”
Types of Concessions
Concession Stands and Vending Machines
One prevalent form of concession is a small shop or vending machine located in places like hotel or office building lobbies, run by an individual or a small business. This type of concession typically involves leasing space to provide convenient access to snacks, drinks, and other assorted items for customers and employees.
Example: A concession stand at a sports stadium selling hot dogs and drinks.
Government-Granted Concessions
Governments often grant concessions to private entities to use public property or provide certain services, such as operating a service station along a highway. These concessions are usually contractually agreed upon, ensuring that the public benefits from enhanced services, while private entities gain the opportunity to generate revenue.
Example: A government granting a concession to a company to operate a toll road.
Lease Incentives
Another frequent use of the term “concession” pertains to real estate and leasing. In this context, it refers to a reduction in rent or special offers during the early portion of a lease term, used as an incentive to attract tenants.
Example: A landlord offering two months of free rent to a new tenant moving into an office space.
Underwriting Compensation
In finance, particularly in the context of corporate underwriting, “concession” signifies the per-share or per-bond compensation allocated to a selling group. It comprises the percentage or spread given to the participants for distributing a new issue of securities.
Example: A brokerage firm receiving a concession for selling a block of corporate bonds.
Historical Context and Applicability
Concessions have been utilized historically to encourage investment and participation in various economic activities. The concept dates back to ancient civilizations where rulers would grant land or trading rights to individuals in exchange for loyalty or taxes.
Applicability of Concessions
- Business Operations: Used in encouraging small entrepreneurs by providing strategic locations within larger establishments.
- Public-Private Partnerships: Government concessions promote infrastructure development and service delivery.
- Real Estate Market: Rent concessions make properties more attractive to potential tenants.
- Financial Markets: Underwriting concessions facilitate the distribution of securities and market liquidity.
Comparisons and Related Terms
Related Terms
- License: A permission granted to engage in a business activity.
- Franchise: A system where businesses operate under a parent company’s brand and guidelines.
- Subsidy: Financial assistance provided by the government to encourage specific economic activities.
FAQs
Q1: What is the main purpose of a concession in real estate? A1: The primary purpose is to attract and retain tenants by offering financial incentives such as reduced rent or rent-free periods.
Q2: How do government concessions benefit the public? A2: They enhance service delivery and infrastructure development, often leading to greater efficiency and resource utilization.
Q3: What does a concession in underwriting compensate for? A3: It compensates the selling group members for their role in distributing and selling the securities in the market.
References
- “Principles of Economics” by N. Gregory Mankiw
- “Investments” by Zvi Bodie, Alex Kane, Alan J. Marcus
- “Real Estate Principles: A Value Approach” by David Ling, Wayne Archer
Summary
Concessions play a pivotal role across various sectors, from business and finance to real estate and government operations. Whether providing incentives for tenants, facilitating the financial market, or granting rights for specific services, concessions create opportunities and foster economic growth.
Concessions are versatile instruments that have evolved over time to align with contemporary economic and business needs, making them indispensable in facilitating commerce and public-private collaborations.
