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Competition and Value-Of-Service Pricing in the Residential Real Estate Brokerage Market

Author

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  • Schroeter, John R.

Abstract

The services of residential real estate brokers are normally priced at a fixed percentage of the selling price of the house. Since the direct cost of selling a house is virtually unrelated to house value, this custom is an example of value-of-service pricing-a practice often regarded as prima facie evidence of collusive price discrimination. This article presents a simple model of the market for real estate brokerage services in which value-of-service pricing emerges as a property of competitive equilibrium. Thus, inferences of noncompetitive broker conduct, based on the prevalence of percentage-of-house-value pricing, may be incorrect.

Suggested Citation

  • Schroeter, John R., 1987. "Competition and Value-Of-Service Pricing in the Residential Real Estate Brokerage Market," Staff General Research Papers Archive 11116, Iowa State University, Department of Economics.
    • Handle: RePEc:isu:genres:11116
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    Citations

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    Cited by:

    1. Randy I. Anderson & Robert Fok & Leonard V. Zumpano & Harold W. Elder, 1998. "Measuring the Efficiency of Residential Real Estate Brokerage Firms," Journal of Real Estate Research, American Real Estate Society, vol. 16(2), pages 139-158.
    2. Abdullah Yavas, 2001. "Impossibility of a Competitive Equilibrium in the Real Estate Brokerage Industry," Journal of Real Estate Research, American Real Estate Society, vol. 21(3), pages 187-200.
    3. 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.
    4. Schroeter, John R., 1995. "Counterpoint: "Competition and value-of-service pricing in the residential real estate brokerage market"," The Quarterly Review of Economics and Finance, Elsevier, vol. 35(3), pages 333-338.
    5. 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.
    6. Han, Lu & Strange, William C., 2015. "The Microstructure of Housing Markets," Handbook of Regional and Urban Economics, in: Gilles Duranton & J. V. Henderson & William C. Strange (ed.), Handbook of Regional and Urban Economics, edition 1, volume 5, chapter 0, pages 813-886, Elsevier.
    7. 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.
    8. Timothy E. Jares & James E. Larsen & Thomas S. Zorn, 2000. "An Optimal Incentive System For Real Estate Agents," Journal of Real Estate Research, American Real Estate Society, vol. 20(1), pages 49-59.
    9. Fabrice Larceneux & Thomas Lefebvre, 2016. "The " Bad Deal " Illusion," Post-Print halshs-01671084, HAL.
    10. Shiawee X. Yang & Abdullah Yavas, 1995. "Bigger is not Better: Brokerage and Time on the Market," Journal of Real Estate Research, American Real Estate Society, vol. 10(1), pages 23-34.
    11. Sirmans, C. F. & Turnbull, Geoffrey K., 1997. "Brokerage Pricing under Competition," Journal of Urban Economics, Elsevier, vol. 41(1), pages 102-117, January.
    12. Jonathan Wiley & Justin Benefield & Marcus Allen, 2014. "Cyclical Determinants of Brokerage Commission Rates," The Journal of Real Estate Finance and Economics, Springer, vol. 48(1), pages 196-219, January.

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