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

Author

Listed:
  • Iwata, Shinichiro
  • Sumita, Kazuto
  • Fujisawa, Mieko

Abstract

This paper examines real estate pricing featuring the price response curve, both theoretically and empirically. The Bertrand model with differentiated products suggests that the price response of real estate may differ when properties in the vicinity are priced by an affiliated firm or one's own firm. This is because the firm can maintain the collusive state if real estate prices in the neighborhood are priced by allies, whereas it loses it if prices are priced by rivals. To examine this prediction, a spatial autoregressive model with autoregressive and heteroskedastic disturbances, including a share of allies in the vicinity, is estimated using data on the residential condominium market in central Tokyo. Empirical results provide support for the model prediction.

Suggested Citation

  • 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.
  • Handle: RePEc:pra:mprapa:37438
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    File URL: https://mpra.ub.uni-muenchen.de/37438/1/MPRA_paper_37438.pdf
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    References listed on IDEAS

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    Cited by:

    1. Tatiana Mikhailova, 2015. "Spatial Competition and Transport Infrastructure: The Case of Moscow Office Rental Market," ERSA conference papers ersa15p1011, European Regional Science Association.

    More about this item

    Keywords

    Real estate prices; Strategic pricing; Spatial econometrics;

    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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