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The Welfare Effects of Non-Price Competition Among Real Estate Brokers

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  • Thomas J. Miceli

Abstract

This paper examines the role of brokers in economizing on transaction costs in the housing market. By lowering the cost of transactions, brokers create welfare gains compared to a market in which buyers and sellers transact on their own. However, if brokers engage in unproductive, non-price competition to acquire a larger share of available listings, then some of the welfare gains are dissipated. Using a partial equilibrium model, this paper shows how an excessive commission rate can lead to this result. Copyright American Real Estate and Urban Economics Association.

Suggested Citation

  • Thomas J. Miceli, 1992. "The Welfare Effects of Non-Price Competition Among Real Estate Brokers," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 20(4), pages 519-532.
  • Handle: RePEc:bla:reesec:v:20:y:1992:i:4:p:519-532
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    References listed on IDEAS

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    1. Capone, Charles A, Jr, 2001. "Introduction to the Special Issue on Mortgage Modeling," The Journal of Real Estate Finance and Economics, Springer, vol. 23(2), pages 131-137, September.
    2. Pavlov, Andrey D, 2001. "Competing Risks of Mortgage Termination: Who Refinances, Who Moves, and Who Defaults?," The Journal of Real Estate Finance and Economics, Springer, vol. 23(2), pages 185-211, September.
    3. Deng, Yongheng & Quigley, John M. & Van Order, Robert & Mac, Freddie, 1996. "Mortgage default and low downpayment loans: The costs of public subsidy," Regional Science and Urban Economics, Elsevier, vol. 26(3-4), pages 263-285, June.
    4. Andrey D. Pavlov, 2000. "Space-Varying Regression Coefficients: A Semi-parametric Approach Applied to Real Estate Markets," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 28(2), pages 249-283.
    5. Stanton, Richard Henry, 1996. "Unobservable Heterogeneity and Rational Learning: Pool-Specific versus Generic Mortgage-Backed Security Prices," The Journal of Real Estate Finance and Economics, Springer, vol. 12(3), pages 243-263, May.
    6. John M. Clapp & Gerson M. Goldberg & John P. Harding & Michael LaCour-Little, 2001. "Movers and Shuckers: Interdependent Prepayment Decisions," Real Estate Economics, American Real Estate and Urban Economics Association, pages 411-450.
    7. Kau, James B. & Keenan, Donald C. & Muller III, Walter J. & Epperson, James F., 1995. "The Valuation at Origination of Fixed-Rate Mortgages with Default and Prepayment," The Journal of Real Estate Finance and Economics, Springer, vol. 11(1), pages 5-36, July.
    8. Quigley, John M, 1987. "Interest Rate Variations, Mortgage Prepayments and Household Mobility," The Review of Economics and Statistics, MIT Press, pages 636-643.
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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, vol. 13(2), pages 177-194.
    2. 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.
    3. Bruce, Donald & Santore, Rudy, 2006. "On optimal real estate commissions," Journal of Housing Economics, Elsevier, vol. 15(2), pages 156-166, June.
    4. 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, vol. 20(1), pages 217-278.
    5. Paul Anglin & Richard Arnott, 1999. "Are Brokers' Commission Rates on Home Sales Too High? A Conceptual Analysis," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 27(4), pages 719-749.
    6. Sirmans, C. F. & Turnbull, Geoffrey K., 1997. "Brokerage Pricing under Competition," Journal of Urban Economics, Elsevier, vol. 41(1), pages 102-117, January.
    7. repec:kap:jrefec:v:55:y:2017:i:2:d:10.1007_s11146-016-9558-z is not listed on IDEAS
    8. 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, vol. 20(1), pages 5-30.
    9. Han, Lu & Strange, William C., 2015. "The Microstructure of Housing Markets," Handbook of Regional and Urban Economics, Elsevier.

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