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Price competition in the spatial real estate market: allies or rivals?

Author

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  • Shinichiro Iwata
  • Kazuto Sumita
  • Mieko Fujisawa

Abstract

This paper examines whether real estate firms can avoid price competition when properties in the vicinity are priced by allies. An oligopoly model with differentiated products generally suggests that real estate firms engage in price competition with their spatially closest rivals. Yet, they can raise property prices when the market share of their allies increases. To test this prediction, a spatial autoregressive model with spatial autoregressive disturbances, including a share of allies in the vicinity, is estimated using data on the prices of residential condos in central Tokyo, Japan. The model prediction is supported by the empirical results. In the data set, the magnitude of the market share on property prices increases with the expansion of the size of the spatial market.

Suggested Citation

  • Shinichiro Iwata & Kazuto Sumita & Mieko Fujisawa, 2019. "Price competition in the spatial real estate market: allies or rivals?," Spatial Economic Analysis, Taylor & Francis Journals, vol. 14(2), pages 174-195, April.
    • Handle: RePEc:taf:specan:v:14:y:2019:i:2:p:174-195
    DOI: 10.1080/17421772.2019.1532596
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    Cited by:

    1. Radoslaw Wolniak & Marcin Olkiewicz & Marta Szymczewska & Anna Olkiewicz, 2020. "The Functioning of the Real Estate Market: Dynamics of Price Formation and the Sale of Apartments," European Research Studies Journal, European Research Studies Journal, vol. 0(2), pages 281-307.
    2. Tatiana Mikhailova, 2015. "Spatial Competition and Transport Infrastructure: The Case of Moscow Office Rental Market," ERSA conference papers ersa15p1011, European Regional Science Association.
    3. Kelejian, Harry H. & Mukerji, Purba, 2022. "Causal factors of terrorist attacks on countries, and corresponding spill-overs between them," European Journal of Political Economy, Elsevier, vol. 72(C).
    4. Anna Olkiewicz & Radosław Wolniak & Marcin Olkiewicz & Martyna Szymczewska, 2020. "The Impact of Professional and Economic Activity on the Development of Apartments Market," European Research Studies Journal, European Research Studies Journal, vol. 0(1), pages 404-418.

    More about this item

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services
    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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