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Impossibility of a Competitive Equilibrium in the Real Estate Brokerage Industry

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Author Info
Abdullah Yavas () (Pennsylvania State University, University Park)

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Abstract

This note shows that the presence of fixed costs (e.g., licence fees, fees for local, state and national realtor associations, continuing education expenses, some of the office expenses, etc.) in the real estate brokerage industry makes it impossible to have competitive commission rates as the equilibrium outcome. In fact, the only pure strategy Nash equilibrium involves monopoly commission rates. This outcome compels alternative equilibrium explanations for the industry and for the future research on brokerage.

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File URL: http://aux.zicklin.baruch.cuny.edu/jrer/papers/pdf/past/vol21n03/compequil.pdf
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Publisher Info
Article provided by American Real Estate Society in its journal Journal of Real Estate Research.

Volume (Year): 21 (2001)
Issue (Month): 3 ()
Pages: 187-200
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:jre:issued:v:21:n:3:2001:p:187-200

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Postal: American Real Estate Society Clemson University School of Business & Behavioral Science Department of Finance 401 Sirrine Hall Clemson, SC 29634-1323
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Web page: http://www.aresnet.org/

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Postal: Diane Quarles American Real Estate Society Manager of Member Services Clemson University Box 341323 Clemson, SC 29634-1323
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Find related papers by JEL classification:
L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Arnott, R. & Anglin, P., 1995. "Are Brokers' Commission Rates on Home Sales Too High? A Conceptual Analysis," G.R.E.Q.A.M. 95a21, Universite Aix-Marseille III.
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  2. Bart Wilson, 1998. "What Collusion? Unilateral Market Power as a Catalyst for Countercyclical Markups," Experimental Economics, Springer, vol. 1(2), pages 133-145, September. [Downloadable!] (restricted)
  3. Bartlett, Randall, 1981. "Property Rights and the Pricing of Real Estate Brokerage," Journal of Industrial Economics, Blackwell Publishing, vol. 30(1), pages 79-94, September. [Downloadable!] (restricted)
  4. Brown-Kruse, Jamie, et al, 1994. "Bertrand-Edgeworth Competition in Experimental Markets," Econometrica, Econometric Society, vol. 62(2), pages 343-72, March. [Downloadable!] (restricted)
  5. Williams, Joseph T, 1998. "Agency and Brokerage of Real Assets in Competitive Equilibrium," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 11(2), pages 239-80.
  6. William C. Goolsby & Barbara J. Childs, 1988. "Brokerage Firm Competition in Real Estate Commission Rates," Journal of Real Estate Research, American Real Estate Society, vol. 3(2), pages 79-85. [Downloadable!]
  7. Sirmans, C. F. & Turnbull, Geoffrey K., 1997. "Brokerage Pricing under Competition," Journal of Urban Economics, Elsevier, vol. 41(1), pages 102-117, January. [Downloadable!] (restricted)
  8. Schroeter, John R., 2003. "Competition and Value-of-Service Pricing in the Residential Real Estate Brokerage Market," Staff General Research Papers 11116, Iowa State University, Department of Economics.
  9. Yinger, John, 1981. "A Search Model of Real Estate Broker Behavior," American Economic Review, American Economic Association, vol. 71(4), pages 591-605, September. [Downloadable!] (restricted)
  10. Alger, Dan, 1987. "Laboratory Tests of Equilibrium Predictions with Disequilibrium Data," Review of Economic Studies, Blackwell Publishing, vol. 54(1), pages 105-45, January. [Downloadable!] (restricted)
  11. Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June. [Downloadable!] (restricted)
  12. Shaked, Avner & Sutton, John, 1982. "Relaxing Price Competition through Product Differentiation," Review of Economic Studies, Blackwell Publishing, vol. 49(1), pages 3-13, January. [Downloadable!] (restricted)
  13. John H. Crockett, 1982. "Competition and Efficiency in Transacting: The Case of Residential Real Estate Brokerage," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 10(2), pages 209-227. [Downloadable!] (restricted)
  14. James R. Follain & Terry Lutes & David A. Meier, 1987. "Why Do Some Real Estate Salespeople Earn More Than Others?," Journal of Real Estate Research, American Real Estate Society, vol. 2(1), pages 73-81. [Downloadable!]
  15. Davis, Douglas D. & Williams, Arlington W., 1986. "The effects of rent asymmetries in posted offer markets," Journal of Economic Behavior & Organization, Elsevier, vol. 7(3), pages 303-316, September. [Downloadable!] (restricted)
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  1. Thomas Miceli & Katherine Pancak & C. Sirmans, 2007. "Is the Compensation Model for Real Estate Brokers Obsolete?," The Journal of Real Estate Finance and Economics, Springer, vol. 35(1), pages 7-22, July. [Downloadable!] (restricted)
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