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Hedonic estimation of housing demand elasticity with a markup over marginal costs

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  • Chen, Yong
  • Clapp, John M.
  • Tirtiroglu, Dogan

Abstract

We show that recent developments in hedonic pricing theory allow modeling of the equilibrium pricing function as the marginal cost of an additional housing unit plus a markup that varies inversely with the elasticity of demand. Useful information about demand elasticity at a given point on the envelope function can be recovered from the hedonic regression and limited information on marginal costs. In particular, the elasticity of the envelope with respect to any characteristic such as interior area provides information on the elasticity of demand. Relative price elasticities (i.e., elasticities that vary from a base value in a known way with interior area, unit type or neighborhood characteristics) can be computed from the elasticity of the hedonic envelope. Like Yinger (2010), our method is based on a single hedonic equation.

Suggested Citation

  • Chen, Yong & Clapp, John M. & Tirtiroglu, Dogan, 2011. "Hedonic estimation of housing demand elasticity with a markup over marginal costs," Journal of Housing Economics, Elsevier, vol. 20(4), pages 233-248.
    • Handle: RePEc:eee:jhouse:v:20:y:2011:i:4:p:233-248
    DOI: 10.1016/j.jhe.2011.07.001
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    Cited by:

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    2. Xiaorong Zhou & Karen Gibler & Velma Zahirovic-Herbert, 2015. "Asymmetric buyer information influence on price in a homogeneous housing market," Urban Studies, Urban Studies Journal Limited, vol. 52(5), pages 891-905, April.
    3. C. Luke Watson & Oren Ziv, 2021. "Is the Rent Too High? Land Ownership and Monopoly Power," CESifo Working Paper Series 8864, CESifo.
    4. Jingfeng Yuan & Xiaodan Zheng & Jia You & Mirosław J. Skibniewski, 2017. "Identifying Critical Factors Influencing the Rents of Public Rental Housing Delivery by PPPs: The Case of Nanjing," Sustainability, MDPI, vol. 9(3), pages 1-22, February.
    5. Guo, Xiaoyang & Zheng, Siqi & Geltner, David & Liu, Hongyu, 2014. "A new approach for constructing home price indices: The pseudo repeat sales model and its application in China," Journal of Housing Economics, Elsevier, vol. 25(C), pages 20-38.

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    More about this item

    Keywords

    House prices; Demand segmentation; Demand elasticity; Hedonic regression; Shenzhen; Monopolistic competition;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D45 - Microeconomics - - Market Structure, Pricing, and Design - - - Rationing; Licensing

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