Friday, May 4, 2012
Posted by D. Daniel Sokol
Shinichiro Iwata, Faculty of Economics, University of Toyama, Kazuto Sumita, Department of Economics, Kanazawa Seiryo University and Mieko Fujisawa, Institute of Economic Research, Hitotsubashi University ask Price competition in the spatial real estate market: Allies or rivals?
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.