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Competition and market structure in local real estate markets

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Author Info

  • Beck, Jason
  • Scott, Frank
  • Yelowitz, Aaron

Abstract

The persistence of the standard six percent real estate sales commission across markets and over time calls into question the competitiveness of the residential real estate brokerage industry. While there is anecdotal evidence that some local real estate markets are fairly concentrated, no systematic study of market structures has been conducted. We have collected primary data on the number and market shares of real estate brokers in a variety of small, medium, and large real estate markets across the U.S. for 2007 and 2009. In addition to these cross sectional data, we have also collected longitudinal data on the size distribution of firms for Louisville, KY for a nine-year period. In our cross-sectional analysis of medium and large markets, we find no evidence that market concentration might create problems for competition. We do find that small markets on average have higher HHI’s than medium and large markets. The longitudinal analysis reveals that many small brokers are in and out of the market, selling a house or two one year and selling zero houses the next year.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 27531.

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Date of creation: 15 Dec 2010
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Handle: RePEc:pra:mprapa:27531

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Keywords: HHI; real estate brokerage competition; Herfindahl-Hirschman Index;

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References

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  1. Anderson, Randy I & Lewis, Danielle & Zumpano, Leonard V, 2000. "Residential Real Estate Brokerage Efficiency from a Cost and Profit Perspective," The Journal of Real Estate Finance and Economics, Springer, vol. 20(3), pages 295-310, May.
  2. Peter F. Colwell & David W. Marshall, 1986. "Market Share in the Real Estate Brokerage Industry," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 14(4), pages 583-599.
  3. Fred A. Forgey & Walter E. Mullendore & Ronald C. Rutherford, 1997. "Market Structure in the Residential Real Estate Brokerage Market," Journal of Real Estate Research, American Real Estate Society, vol. 14(2), pages 107-116.
  4. Zumpano, Leonard V & Elder, Harold W & Crellin, Glenn E, 1993. "The Market for Residential Real Estate Brokerage Services: Costs of Production and Economies of Scale," The Journal of Real Estate Finance and Economics, Springer, vol. 6(3), pages 237-50, May.
  5. White, Lawrence J., 2006. "The Residential Real Estate Brokerage Industry: What Would More Vigorous Competition Look Like?," Working paper 102, Regulation2point0.
  6. Natalya Delcoure & Norm G. Miller, 2002. "International Residential Real Estate Brokerage Fees and Implications for the US Brokerage Industry," International Real Estate Review, Asian Real Estate Society, vol. 5(1), pages 12-39.
  7. Michael Carney, 1982. "Costs and Pricing of Home Brokerage Services," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 10(3), pages 331-354.
  8. Leonard V. Zumpano & Harold W. Elder, 1994. "Economies of Scope and Density in the Market for Real Estate Brokerage Services," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 22(3), pages 497-513.
  9. Brown, Jeffrey, 2000. "Does the Internet Make Markets More Competitive? Evidence from the Life Insurance Industry," Working Paper Series rwp00-007, Harvard University, John F. Kennedy School of Government.
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Cited by:
  1. Iwata, Shinichiro & Sumita, Kazuto & Fujisawa, Mieko, 2012. "Price competition in the spatial real estate market: Allies or rivals?," MPRA Paper 37438, University Library of Munich, Germany.
  2. Yelowitz, Aaron & Scott, Frank & Beck, Jason, 2011. "The market for real estate brokerage services in low- and high-income neighborhoods: A 6 city study," MPRA Paper 35608, University Library of Munich, Germany.

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