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Economies of Scope and Density in the Market for Real Estate Brokerage Services

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  • Leonard V. Zumpano
  • Harold W. Elder
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    Abstract

    Using a multiproduct translog cost function, this paper examines the case for economies of scope and density in the market for residential real estate brokerage services. Earlier research that treated output as a homogeneous commodity reported modest economies of scale for this industry. The results of this study suggest that the composition of output is an important source of these scale economies, rather than simply the size of the firm. The economies of scope which we find imply that a balanced mix of listing and sales is the least costly type of operation, a result borne out by the product mix found in our sample. The results also show product-specific diseconomies of scale, suggesting that specialization in either listing or sales may be sub-optimal under the current institutional arrangements present in the market. Finally, market density appears to be, at best, only a nominal source of savings for real estate brokerage firms. Copyright American Real Estate and Urban Economics Association.

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    Bibliographic Info

    Article provided by American Real Estate and Urban Economics Association in its journal Real Estate Economics.

    Volume (Year): 22 (1994)
    Issue (Month): 3 ()
    Pages: 497-513

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    Handle: RePEc:bla:reesec:v:22:y:1994:i:3:p:497-513

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    Cited by:
    1. T.L. Tyler Yang & Joseph W. Trefzger & Lawrence F. Sherman, 1997. "A Microeconomic Study of Commercial Real Estate Brokerage Firms," Journal of Real Estate Research, American Real Estate Society, American Real Estate Society, vol. 13(2), pages 177-194.
    2. John D. Benjamin & G. Donald Jud & G. Stacy Sirmans, 2000. "Real Estate Brokerage and the Hosting Market: An Annotated Bibliography," Journal of Real Estate Research, American Real Estate Society, American Real Estate Society, vol. 20(1), pages 217-278.
    3. Randy I. Anderson & Danielle Lewis & Leonard V. Zumpano, 2000. "X-Inefficiencies in the Residential Real Estate Market: A Stochastic Frontier Approach," Journal of Real Estate Research, American Real Estate Society, American Real Estate Society, vol. 20(1), pages 93-103.
    4. Leonard V. Zumpano & Harold W. Elder & Randy I. Anderson, 2000. "The Residential Real Estate Brokerage Industry: An Overview of Past Performance and Future Prospects," Journal of Real Estate Research, American Real Estate Society, American Real Estate Society, vol. 19(2), pages 189-208.
    5. Sean Salter & Ken Johnson & Ernest King, 2010. "Listing Specialization and Pricing Precision," The Journal of Real Estate Finance and Economics, Springer, Springer, vol. 40(3), pages 245-259, April.
    6. Beck, Jason & Scott, Frank & Yelowitz, Aaron, 2010. "Competition and market structure in local real estate markets," MPRA Paper 27531, University Library of Munich, Germany.
    7. John D. Benjamin & Peter Chinloy & Donald Jud & Daniel T. Winkler, 2006. "Franchising in Residential Brokerage," Journal of Real Estate Research, American Real Estate Society, American Real Estate Society, vol. 28(1), pages 61-70.
    8. Jonathan Wiley & Justin Benefield & Marcus Allen, 2014. "Cyclical Determinants of Brokerage Commission Rates," The Journal of Real Estate Finance and Economics, Springer, Springer, vol. 48(1), pages 196-219, January.
    9. Lewis, Danielle & Anderson, Randy I. & Zumpano, Leonard V., 1999. "An analysis of affinity programs: the case of real estate brokerage participation," Financial Services Review, Elsevier, Elsevier, vol. 8(3), pages 183-197.
    10. John D. Benjamin & G. Donald Jud & G. Stacy Sirmans, 2000. "What Do We Know About Real Estate Brokerage?," Journal of Real Estate Research, American Real Estate Society, American Real Estate Society, vol. 20(1), pages 5-30.
    11. Lewis, Danielle & Webb, James R., 2007. "Potential cost synergies from banks acquiring real estate brokerage services," Journal of Banking & Finance, Elsevier, vol. 31(8), pages 2347-2363, August.
    12. John D. Benjamin & Peter Chinloy & Donald Jud & Daniel T. Winkler, 2005. "Technology and Real Estate Brokerage Firm Financial Performance," Journal of Real Estate Research, American Real Estate Society, American Real Estate Society, vol. 27(4), pages 409-426.
    13. Groot, Tom & Garcia-Valderrama, Teresa, 2006. "Research quality and efficiency: An analysis of assessments and management issues in Dutch economics and business research programs," Research Policy, Elsevier, vol. 35(9), pages 1362-1376, November.
    14. Randy I. Anderson & Robert Fok & Leonard V. Zumpano & Harold W. Elder, 1998. "Measuring the Efficiency of Residential Real Estate Brokerage Firms," Journal of Real Estate Research, American Real Estate Society, American Real Estate Society, vol. 16(2), pages 139-158.
    15. Leonard V. Zumpano & Ken Johnson & Randy I. Anderson, 2007. "Listing Specialization and Residential Real Estate Licensee," Journal of Real Estate Research, American Real Estate Society, American Real Estate Society, vol. 29(1), pages 75-90.
    16. Martina Bers & Thomas M. Springer, 1997. "Economies of Scale for Real Estate Investment Trusts," Journal of Real Estate Research, American Real Estate Society, American Real Estate Society, vol. 14(3), pages 275-290.

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