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A Price Dispersion Equilibrium in a Spatially Differentiated Housing Market with Search Costs

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  • Colin Read

Abstract

An equilibrium model of search in a spatially differentiated rental housing market is formulated that predicts both rent dispersion and equilibrium vacancies. The equilibrium rent distribution is determined on the landlord's (rental supply) side given tenants' search strategies. Then tenants' optimal search strategy, denned by the share of the market a tenant searches, is determined given the costs and benefits of search and the distribution of landlords' rents. The equations of supply and demand for rental units are then combined to derive a costly information, free‐entry Nash equilibrium in the market rents. Finally, the sensitivity of equilibrium vacancies and rents to changes in search costs and other exogenous parameters is explored.

Suggested Citation

  • Colin Read, 1991. "A Price Dispersion Equilibrium in a Spatially Differentiated Housing Market with Search Costs," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 19(4), pages 532-547, December.
    • Handle: RePEc:bla:reesec:v:19:y:1991:i:4:p:532-547
    DOI: 10.1111/1540-6229.00566
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    Cited by:

    1. repec:spo:wpecon:info:hdl:2441/8988 is not listed on IDEAS
    2. Gabriel Desgranges & Étienne Wasmer, 2000. "Appariements sur le marché du logement," Annals of Economics and Statistics, GENES, issue 58, pages 253-287.
    3. Etienne Wasmer, 2005. "Housing market discrimination, housing regulations and intermediaries," Post-Print hal-01053551, HAL.
    4. Leung, Charles Ka Yui & Zhang, Jun, 2011. "“Fire Sales” in housing market: is the house-searching process similar to a theme park visit?," MPRA Paper 29127, University Library of Munich, Germany.
    5. Gaetano Lisi, 2011. "Price Dispersion in the Housing Market: The Role of Bargaining and Search Costs," Working Papers hal-00628323, HAL.
    6. Christopher J. Mayer, 1993. "A model of real estate auctions versus negotiated sales," Working Papers 93-3, Federal Reserve Bank of Boston.
    7. Miceli, Thomas J. & Sirmans, C.F., 2013. "Efficiency rents: A new theory of the natural vacancy rate for rental housing," Journal of Housing Economics, Elsevier, vol. 22(1), pages 20-24.
    8. Maury, Tristan-Pierre & Tripier, Fabien, 2014. "Search strategies on the housing market and their implications on price dispersion," Journal of Housing Economics, Elsevier, vol. 26(C), pages 55-80.
    9. Forgionne, G. A., 1996. "Forecasting army housing supply with a DSS-delivered econometric model," Omega, Elsevier, vol. 24(5), pages 561-576, October.
    10. Lisi, Gaetano, 2011. "Price dispersion in the housing market: the role of bargaining and search costs," MPRA Paper 33863, University Library of Munich, Germany.
    11. C. Y. Yiu & C. S. Tam & P. Y. Lee, 2005. "Volume‐related Heteroskedasticity and Liquidity Premium in Hedonic Pricing Model," Journal of Property Research, Taylor & Francis Journals, vol. 23(1), pages 39-51, July.
    12. C. Yiu & S. Wong & K. Chau, 2009. "Transaction Volume and Price Dispersion in the Presale and Spot Real Estate Markets," The Journal of Real Estate Finance and Economics, Springer, vol. 38(3), pages 241-253, April.
    13. repec:hal:spmain:info:hdl:2441/8988 is not listed on IDEAS
    14. Etienne Wasmer, 2005. "Housing market discrimination, housing regulations and intermediaries," SciencePo Working papers hal-01053551, HAL.
    15. Charles Ka Yui Leung & Jun Zhang, 2011. ""Fire Sales" in Housing Market: Is the House- Search Process Similar to a Theme Park Visit?," International Real Estate Review, Global Social Science Institute, vol. 14(3), pages 311-329.
    16. Tristan-Pierre Maury & Fabien Tripier, 2010. "Strategies for search on the housing market and their implications for price dispersion," Working Papers hal-00480484, HAL.
    17. Gabriel Desgranges & Étienne Wasmer, 2000. "Appariements sur le marché du logement," Annals of Economics and Statistics, GENES, issue 58, pages 253-287.
    18. repec:hal:wpspec:info:hdl:2441/8988 is not listed on IDEAS

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