List Prices, Sale Prices, and Marketing Time: An Application to U.S. Housing Markets
AbstractMany goods are marketed after first stating a list price, with the expectation that the eventual sales price will differ. In this paper we first extend search theory to include the seller setting a list price. Holding constant the mean of the buyers’ distribution of potential offers for a good, we assume that the greater the list price, the slower the arrival rate of offers but the greater is the maximal offer. This tradeoff determines the optimal list price, which is set simultaneously with the seller’s reservation price. Comparative statics are derived through a set numerical sensitivity tests, where we show that the greater the variance of the distribution of buyers’ potential offers, the greater is the ratio of the list price to expected sales price. Thus, sellers of atypical goods will tend to set a relatively high list price compared with standard goods. We test this hypothesis using data from the Columbus, Ohio housing market and find substantial support. Other applications could include the market for fine art or autos.
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Bibliographic InfoPaper provided by Ohio State University, Charles A. Dice Center for Research in Financial Economics in its series Working Paper Series with number 2006-22.
Date of creation: Oct 2006
Date of revision:
Other versions of this item:
- Donald R. Haurin & Jessica L. Haurin & Taylor Nadauld & Anthony Sanders, 2010. "List Prices, Sale Prices and Marketing Time: An Application to U.S. Housing Markets," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 38(4), pages 659-685, Winter.
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- Knight, John R & Sirmans, C F & Turnbull, Geoffrey K, 1994.
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