Assessing the Value of On-line Information Using a Two-sided Equilibrium Search Model in the Real Estate Market
The last decade has witnessed an explosive growth in the use of the internet. Not only the number of users has dramatically increased, but also the amount and quality of the information displayed online has improved. The information available to web users is limited mostly by technological constraints and will be significantly less restrictive in the next decade. These technological changes foreseen for the future should affect buyer's and seller's behavior in many electronic markets (e-markets). One can think of two elements that determine the importance of e-markets: a) the number of consumers who have internet access, and b) the amount and quality of the information that internet marketplaces provide to consumers. Clearly, changes in each of these elements should affect the e-markets differently, and we are not aware of any previous study that has attempted to separate these effects. In our research paper, we attempt to explain how improvements in the information technology affect buyer's and seller's behavior in online markets. We focus our attention on the Real Estate Market (REM) for several reasons. First, housing units, in the majority of cases, are advertised through the internet. Second, buyers incur remarkable high offline search costs in the REM. Third, online housing sites have notably improved the amount of information they display by incorporating pictures and virtual tours to the existing Multiple Listing Services, and important improvements are forecasted for the near future. Finally, the housing market is one of the largest and most important in the US economy. We specify and estimate an equilibrium two-sided search model that depicts many of the REMâ€™s real-life features. The theoretical model modifies the framework of existing equilibrium search models in the labor literature to capture the unique nature of the REM. To our knowledge, it is the first attempt in the literature to model in an equilibrium context five very important characteristics of the REM: a) buyers' and sellers' search behavior, b) heterogeneity in agents' motivation to trade, c) transaction costs, d) a trading mechanism with posting prices and bargaining, and e) the availability of an online advertising technology. To estimate our theoretical model, we follow the growing literature on estimation of equilibrium search models and use maximum likelihood methods. The data used for estimation consists of Multiple Listing Services data for real estate transactions in Charlottesville City and Albemarle County (VA) during the years 2000 through 2002. Our estimates suggest that only 3% of the relevant information that home-buyers collect before making a purchase decision is obtained through on-line ads. Furthermore, we use the estimated model to conduct counterfactual experiments and find that, improvements in online information displayed by Real Estate ads decrease equilibrium prices but increase the time that a property stays on the market.
|Date of creation:||11 Nov 2005|
|Date of revision:|
|Contact details of provider:|| Web page: http://comp-econ.org/|
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Benoit Julien & John Kennes & Ian King, 2000.
"Bidding for Labor,"
Review of Economic Dynamics,
Elsevier for the Society for Economic Dynamics, vol. 3(4), pages 619-649, October.
- Rosen, Sherwin, 1974. "Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition," Journal of Political Economy, University of Chicago Press, vol. 82(1), pages 34-55, Jan.-Feb..
- Bin, Okmyung, 2004. "A prediction comparison of housing sales prices by parametric versus semi-parametric regressions," Journal of Housing Economics, Elsevier, vol. 13(1), pages 68-84, March.
- Bagnoli, M. & Bergstrom, T., 1989.
"Log-Concave Probability And Its Applications,"
89-23, Michigan - Center for Research on Economic & Social Theory.
- Mackie-Mason, J.K. & Varian, H.R., 1993.
"Pricing the Internet,"
20/1993, Oslo University, Department of Economics.
- Dale T. Mortensen, 1988. "Equilibrium Wage Distrihutions: A Synthesis," Discussion Papers 811, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Burdett, Kenneth & Judd, Kenneth L, 1983. "Equilibrium Price Dispersion," Econometrica, Econometric Society, vol. 51(4), pages 955-69, July.
- Han Bin Kang & Mona J. Gardner, 1989. "Selling Price and Marketing Time in the Residential Real Estate Market," Journal of Real Estate Research, American Real Estate Society, vol. 4(1), pages 21-35.
- Albrecht, James W & Axell, Bo, 1983.
"An Equilibrium Model of Search Unemployment,"
Working Paper Series
99, Research Institute of Industrial Economics.
- Steven D. Levitt & Chad Syverson, 2005.
"Market Distortions when Agents are Better Informed: The Value of Information in Real Estate Transactions,"
NBER Working Papers
11053, National Bureau of Economic Research, Inc.
- Steven D. Levitt & Chad Syverson, 2008. "Market Distortions When Agents Are Better Informed: The Value of Information in Real Estate Transactions," The Review of Economics and Statistics, MIT Press, vol. 90(4), pages 599-611, November.
- Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June.
- Richard Rogerson & Robert Shimer & Randall Wright, 2004. "Search-Theoretic Models of the Labor Market-A Survey," NBER Working Papers 10655, National Bureau of Economic Research, Inc.
- Austan Goolsbee, 1998.
"In a World Without Borders: The Impact of Taxes on Internet Commerce,"
NBER Working Papers
6863, National Bureau of Economic Research, Inc.
- Austan Goolsbee, 2000. "In A World Without Borders: The Impact Of Taxes On Internet Commerce," The Quarterly Journal of Economics, MIT Press, vol. 115(2), pages 561-576, May.
- Lippman, Steven A & McCall, John J, 1976. "The Economics of Job Search: A Survey," Economic Inquiry, Western Economic Association International, vol. 14(3), pages 347-68, September.
- Brown, Jeffrey, 2000.
"Does the Internet Make Markets More Competitive? Evidence from the Life Insurance Industry,"
Working Paper Series
rwp00-007, Harvard University, John F. Kennedy School of Government.
- Jeffrey R. Brown & Austan Goolsbee, 2002. "Does the Internet Make Markets More Competitive? Evidence from the Life Insurance Industry," Journal of Political Economy, University of Chicago Press, vol. 110(3), pages 481-507, June.
- Heckman, James J, 1979.
"Sample Selection Bias as a Specification Error,"
Econometric Society, vol. 47(1), pages 153-61, January.
- Simon P. Anderson & R�gis Renault, 2006.
American Economic Review,
American Economic Association, vol. 96(1), pages 93-113, March.
- Yinger, John, 1981. "A Search Model of Real Estate Broker Behavior," American Economic Review, American Economic Association, vol. 71(4), pages 591-605, September.
- repec:cup:etheor:v:7:y:1991:i:4:p:464-86 is not listed on IDEAS
- Abdullah Yavaş, 1992. "A Simple Search and Bargaining Model of Real Estate Markets," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 20(4), pages 533-548.
- Palmquist, Raymond B, 1980. "Alternative Techniques for Developing Real Estate Price Indexes," The Review of Economics and Statistics, MIT Press, vol. 62(3), pages 442-48, August.
- Michael A. Arnold, 1999. "Search, Bargaining and Optimal Asking Prices," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 27(3), pages 453-481.
- Horowitz, Joel L, 1992. "The Role of the List Price in Housing Markets: Theory and an Econometric Model," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 7(2), pages 115-29, April-Jun.
- Zumpano, Leonard V. & Johnson, Ken H. & Anderson, Randy I., 2003. "Internet use and real estate brokerage market intermediation," Journal of Housing Economics, Elsevier, vol. 12(2), pages 134-150, June.
- Lee McKnight & Joseph P. Bailey, 1997. "Global Internet Economics," Brazilian Electronic Journal of Economics, Department of Economics, Universidade Federal de Pernambuco, vol. 1(0), December.
- Christensen, B.J. & Kiefer, N.M., 1990.
"The Exact Likelihood Function For An Empirical Job Search Model,"
9017, Tilburg - Center for Economic Research.
- Christensen, Bent Jesper & Kiefer, Nicholas M., 1991. "The Exact Likelihood Function for an Empirical Job Search Model," Econometric Theory, Cambridge University Press, vol. 7(04), pages 464-486, December.
- Ernst R. Berndt & Bronwyn H. Hall & Robert E. Hall & Jerry A. Hausman, 1974. "Estimation and Inference in Nonlinear Structural Models," NBER Chapters, in: Annals of Economic and Social Measurement, Volume 3, number 4, pages 653-665 National Bureau of Economic Research, Inc.
- Yongmin Chen & Robert W. Rosenthal, 1993.
"Asking Prices as Commitment Devices,"
0042, Boston University - Industry Studies Programme.
- Burdett, Kenneth & Mortensen, Dale T, 1998. "Wage Differentials, Employer Size, and Unemployment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(2), pages 257-73, May.
- Michel Glower & Donald R. Haurin & Patric H. Hendershott, 1998. "Selling Time and Selling Price: The Influence of Seller Motivation," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 26(4), pages 719-740.
- Kennan, J. & Wilson, R., 1991.
"Bargaining with Private Information,"
90-01rev, University of Iowa, Department of Economics.
- H. Bunzel & B. J. Christensen & P. Jensen & N. M. Kiefer & L. Korsholm & L. Muus & G. R. Neumann & M. Rosholm, 2001. "Specification and Estimation of Equilibrium Search Models," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 4(1), pages 90-126, January.
- Steven Stern & John Pepper, 2001. "Empirical Search Models," Virginia Economics Online Papers 383, University of Virginia, Department of Economics.
- Kenneth Burdett & Shouyong Shi & Randall Wright, 2001. "Pricing and Matching with Frictions," Journal of Political Economy, University of Chicago Press, vol. 109(5), pages 1060-1085, October.
- Abdullah Yavas & Shiawee Yang, 1995. "The Strategic Role of Listing Price in Marketing Real Estate: Theory and Evidence," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 23(3), pages 347-368.
- Dale T. Mortensen & Randall Wright, 2002. "Competitive Pricing and Efficiency in Search Equilibrium," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(1), pages 1-20, February.
When requesting a correction, please mention this item's handle: RePEc:sce:scecf5:307. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christopher F. Baum)
If references are entirely missing, you can add them using this form.