IDEAS home Printed from https://ideas.repec.org/p/ces/ceswps/_8337.html
   My bibliography  Save this paper

Why Do Buyers Pay Different Prices for Comparable Products? Evidence from the Housing Market

Author

Listed:
  • Ralph Siebert
  • Michael J. Seiler

Abstract

We focus on the housing market and examine why nonlocal home buyers (NLBs) pay 15 percent more for houses than local home buyers (LBs). We estimate a housing demand model that returns heterogeneous willingness to pay parameters for housing attributes. Our results show that NLBs are willing to pay more for specific housing attributes, especially for house size and school quality. We also find that gratification and reward arguments, and imperfect price information explain the price differential to a large extent. Search cost and house age arguments have an adverse effect on NLBs’ house spending.

Suggested Citation

  • Ralph Siebert & Michael J. Seiler, 2020. "Why Do Buyers Pay Different Prices for Comparable Products? Evidence from the Housing Market," CESifo Working Paper Series 8337, CESifo.
    • Handle: RePEc:ces:ceswps:_8337
    as

    Download full text from publisher

    File URL: https://www.cesifo.org/DocDL/cesifo1_wp8337.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Rothschild, Michael, 1974. "Searching for the Lowest Price When the Distribution of Prices Is Unknown," Journal of Political Economy, University of Chicago Press, vol. 82(4), pages 689-711, July/Aug..
    2. Xin He & Zhenguo Lin & Yingchun Liu & Michael J. Seiler, 2020. "Search Benefit in Housing Markets: An Inverted U‐Shaped Price and TOM Relation," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 48(3), pages 772-807, September.
    3. David Card & Alan B. Krueger, 1996. "Labor Market Effects of School Quality: Theory and Evidence," NBER Working Papers 5450, National Bureau of Economic Research, Inc.
    4. 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.
    5. Steven Salop & Joseph Stiglitz, 1977. "Bargains and Ripoffs: A Model of Monopolistically Competitive Price Dispersion," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 44(3), pages 493-510.
    6. Eli Beracha & Michael Seiler, 2014. "The Effect of Listing Price Strategy on Transaction Selling Prices," The Journal of Real Estate Finance and Economics, Springer, vol. 49(2), pages 237-255, August.
    7. Sandra E. Black, 1999. "Do Better Schools Matter? Parental Valuation of Elementary Education," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 114(2), pages 577-599.
    8. Nechyba, Thomas J. & Strauss, Robert P., 1998. "Community choice and local public services: A discrete choice approach," Regional Science and Urban Economics, Elsevier, vol. 28(1), pages 51-73, January.
    9. Zack Cooper & Stuart V Craig & Martin Gaynor & John Van Reenen, 2019. "The Price Ain’t Right? Hospital Prices and Health Spending on the Privately Insured," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 134(1), pages 51-107.
    10. Terrence Clauretie & Paul Thistle, 2007. "The Effect of Time-on-Market and Location on Search Costs and Anchoring: The Case of Single-Family Properties," The Journal of Real Estate Finance and Economics, Springer, vol. 35(2), pages 181-196, August.
    11. Ken H. Johnson & Zhenguo Lin & Jia Xie, 2015. "Dual Agent Distortions in Real Estate Transactions," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 43(2), pages 507-536, June.
    12. Michael R. Baye & John Morgan & Patrick Scholten, 2006. "Information, Search, and Price Dispersion," Working Papers 2006-11, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
    13. Patrick Bayer & Fernando Ferreira & Robert McMillan, 2007. "A Unified Framework for Measuring Preferences for Schools and Neighborhoods," Journal of Political Economy, University of Chicago Press, vol. 115(4), pages 588-638, August.
    14. Dennis Epple & Holger Sieg, 1999. "Estimating Equilibrium Models of Local Jurisdictions," Journal of Political Economy, University of Chicago Press, vol. 107(4), pages 645-681, August.
    15. Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June.
    16. Ping Cheng & Zhenguo Lin & Yingchun Liu & Michael J. Seiler, 2015. "The Benefit of Search in Housing Markets," Journal of Real Estate Research, American Real Estate Society, vol. 37(4), pages 597-622.
    17. Genesove, David & Mayer, Christopher J, 1997. "Equity and Time to Sale in the Real Estate Market," American Economic Review, American Economic Association, vol. 87(3), pages 255-269, June.
    18. Peter Chinloy & William Hardin III & Zhonghua Wu, 2013. "Price, Place, People and Local Experience," Journal of Real Estate Research, American Real Estate Society, vol. 35(4), pages 477-506.
    19. Ronald Rutherford & Thomas Springer & Abdullah Yavas, 2007. "Evidence of Information Asymmetries in the Market for Residential Condominiums," The Journal of Real Estate Finance and Economics, Springer, vol. 35(1), pages 23-38, July.
    20. Val E. Lambson & Grant R. McQueen & Barrett A. Slade, 2004. "Do Out‐of‐State Buyers Pay More for Real Estate? An Examination of Anchoring‐Induced Bias and Search Costs," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 32(1), pages 85-126, March.
    21. Keith Ihlanfeldt & Tom Mayock, 2012. "Information, Search, and House Prices: Revisited," The Journal of Real Estate Finance and Economics, Springer, vol. 44(1), pages 90-115, January.
    22. J’Noel Gardiner & Jeffrey Heisler & Jarl Kallberg & Crocker Liu, 2007. "The Impact of Dual Agency," The Journal of Real Estate Finance and Economics, Springer, vol. 35(1), pages 39-55, July.
    23. Pinelopi Koujianou Goldberg & Frank Verboven, 2001. "The Evolution of Price Dispersion in the European Car Market," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 68(4), pages 811-848.
    24. John P. Harding & Stuart S. Rosenthal & C. F. Sirmans, 2003. "Estimating Bargaining Power in the Market for Existing Homes," The Review of Economics and Statistics, MIT Press, vol. 85(1), pages 178-188, February.
    25. David C. Ling & Andy Naranjo & Milena T. Petrova, 2018. "Search Costs, Behavioral Biases, and Information Intermediary Effects," The Journal of Real Estate Finance and Economics, Springer, vol. 57(1), pages 114-151, July.
    26. Merlo, Antonio & Ortalo-Magne, Francois, 2004. "Bargaining over residential real estate: evidence from England," Journal of Urban Economics, Elsevier, vol. 56(2), pages 192-216, September.
    27. Elder, Harold W & Zumpano, Leonard V & Baryla, Edward A, 1999. "Buyer Search Intensity and the Role of the Residential Real Estate Broker," The Journal of Real Estate Finance and Economics, Springer, vol. 18(3), pages 351-368, May.
    28. Zach Y. Brown, 2019. "Equilibrium Effects of Health Care Price Information," The Review of Economics and Statistics, MIT Press, vol. 101(4), pages 699-712, October.
    29. Turnbull, Geoffrey K. & Sirmans, C. F., 1993. "Information, search, and house prices," Regional Science and Urban Economics, Elsevier, vol. 23(4), pages 545-557, September.
    30. Rutherford, R.C. & Springer, T.M. & Yavas, A., 2005. "Conflicts between principals and agents: evidence from residential brokerage," Journal of Financial Economics, Elsevier, vol. 76(3), pages 627-665, June.
    31. Michael Rothschild, 1974. "Searching for the Lowest Price When the Distribution of Prices Is Unknown: A Summary," NBER Chapters, in: Annals of Economic and Social Measurement, Volume 3, number 1, pages 293-294, National Bureau of Economic Research, Inc.
    32. Betts, Julian R, 1995. "Does School Quality Matter? Evidence from the National Longitudinal Survey of Youth," The Review of Economics and Statistics, MIT Press, vol. 77(2), pages 231-250, May.
    33. David M. Cutler & Edward L. Glaeser, 1997. "Are Ghettos Good or Bad?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(3), pages 827-872.
    34. Karl E. Case & Robert J. Shiller, 2003. "Is There a Bubble in the Housing Market?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 34(2), pages 299-362.
    35. David Dranove & Mark A. Satterthwaite, 1992. "Monopolistic Competition When Price and Quality are Imperfectly Observable," RAND Journal of Economics, The RAND Corporation, vol. 23(4), pages 518-534, Winter.
    36. Bucchianeri, Grace W. & Minson, Julia A., 2013. "A homeowner's dilemma: Anchoring in residential real estate transactions," Journal of Economic Behavior & Organization, Elsevier, vol. 89(C), pages 76-92.
    37. Babur De Los Santos & Ali Hortacsu & Matthijs R. Wildenbeest, 2012. "Testing Models of Consumer Search Using Data on Web Browsing and Purchasing Behavior," American Economic Review, American Economic Association, vol. 102(6), pages 2955-2980, October.
    38. Epple, Dennis, 1987. "Hedonic Prices and Implicit Markets: Estimating Demand and Supply Functions for Differentiated Products," Journal of Political Economy, University of Chicago Press, vol. 95(1), pages 59-80, February.
    39. Cardella, Eric & Seiler, Michael J., 2016. "The effect of listing price strategy on real estate negotiations: An experimental study," Journal of Economic Psychology, Elsevier, vol. 52(C), pages 71-90.
    40. Craig Watkins, 1998. "Are new entrants to the residential property market informationally disadvantaged?," Journal of Property Research, Taylor & Francis Journals, vol. 15(1), pages 57-70, January.
    41. David Card & Alan Krueger, 1996. "Labor Market Effects of School Quality: Theory and Evidence," Working Papers 736, Princeton University, Department of Economics, Industrial Relations Section..
    42. Cynthia Holmes & Jia Xie, 2018. "Distortions in Real Estate Transactions with Out-of-State Participants," The Journal of Real Estate Finance and Economics, Springer, vol. 57(4), pages 592-617, November.
    43. Günter J. Hitsch & Ali Hortaçsu & Xiliang Lin, 2019. "Prices and Promotions in U.S. Retail Markets: Evidence from Big Data," NBER Working Papers 26306, National Bureau of Economic Research, Inc.
    44. Yuk-Shee Chan & Hayne Leland, 1982. "Prices and Qualities in Markets with Costly Information," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 49(4), pages 499-516.
    45. Matthew Grennan, 2013. "Price Discrimination and Bargaining: Empirical Evidence from Medical Devices," American Economic Review, American Economic Association, vol. 103(1), pages 145-177, February.
    46. Eric A. Hanushek, 1996. "Measuring Investment in Education," Journal of Economic Perspectives, American Economic Association, vol. 10(4), pages 9-30, Fall.
    47. Anand, Amber & Subrahmanyam, Avanidhar, 2008. "Information and the Intermediary: Are Market Intermediaries Informed Traders in Electronic Markets?," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 43(1), pages 1-28, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ralph B. Siebert & Michael J. Seiler, 2022. "Why Do Buyers Pay Different Prices for Comparable Products? A Structural Approach on the Housing Market," The Journal of Real Estate Finance and Economics, Springer, vol. 65(2), pages 261-292, August.
    2. Daniel Broxterman & Tingyu Zhou, 2023. "Information Frictions in Real Estate Markets: Recent Evidence and Issues," The Journal of Real Estate Finance and Economics, Springer, vol. 66(2), pages 203-298, February.
    3. Cynthia Holmes & Jia Xie, 2018. "Distortions in Real Estate Transactions with Out-of-State Participants," The Journal of Real Estate Finance and Economics, Springer, vol. 57(4), pages 592-617, November.
    4. 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.
    5. Xiaorong Zhou & Karen Gibler & Velma Zahirovic-Herbert, 2015. "Asymmetric buyer information influence on price in a homogeneous housing market," Urban Studies, Urban Studies Journal Limited, vol. 52(5), pages 891-905, April.
    6. Patrick Bayer & Robert McMillan & Kim Rueben, 2004. "Residential Segregation in General Equilibrium," Working Papers 885, Economic Growth Center, Yale University.
    7. David C. Ling & Andy Naranjo & Milena T. Petrova, 2018. "Search Costs, Behavioral Biases, and Information Intermediary Effects," The Journal of Real Estate Finance and Economics, Springer, vol. 57(1), pages 114-151, July.
    8. Bian, Xun & Waller, Bennie D. & Turnbull, Geoffrey K. & Wentland, Scott A., 2015. "How many listings are too many? Agent inventory externalities and the residential housing market," Journal of Housing Economics, Elsevier, vol. 28(C), pages 130-143.
    9. Patrick Bayer & Robert McMillan, 2005. "Racial Sorting and Neighborhood Quality," NBER Working Papers 11813, National Bureau of Economic Research, Inc.
    10. Thomas J. Emmerling & Abdullah Yavas & Yildiray Yildirim, 2021. "To accept or not to accept: Optimal strategy for sellers in real estate," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 49(S1), pages 268-296, March.
    11. Martin Jurkovic & Dirk Schiereck, 2023. "Internationale Büroimmobilien-Investoren: Preisprämien aufgrund von Selektionsverzerrungen? [International office investors: price premiums due to “selection bias”?]," Zeitschrift für Immobilienökonomie (German Journal of Real Estate Research), Springer;Gesellschaft für Immobilienwirtschaftliche Forschung e. V., vol. 9(1), pages 1-29, April.
    12. Matthew Cypher & S. McKay Price & Spenser Robinson & Michael J. Seiler, 2018. "Price Signals and Uncertainty in Commercial Real Estate Transactions," The Journal of Real Estate Finance and Economics, Springer, vol. 57(2), pages 246-263, August.
    13. Martijn Dröes & Philip Koppels & Boris Ziermans, 2017. "Information Asymmetry, Lease Incentives, and the Role of Advisors in the Market for Commercial Real Estate," ERES eres2017_250, European Real Estate Society (ERES).
    14. Lawrence Kryzanowski & Yanting Wu & Tingyu Zhou, 2023. "Conflicts of interest and agent heterogeneity in buyer brokerage," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 51(1), pages 130-169, January.
    15. Justin Benefield & Ronald Rutherford & Marcus Allen, 2012. "The Effects of Estate Sales of Residential Real Estate on Price and Marketing Time," The Journal of Real Estate Finance and Economics, Springer, vol. 45(4), pages 965-981, November.
    16. Xing Zhang & Tat Y. Chan & Ying Xie, 2018. "Price Search and Periodic Price Discounts," Management Science, INFORMS, vol. 64(2), pages 495-510, February.
    17. Tingyu Zhou & John M Clapp & Ran Lu‐Andrews, 2022. "Examining omitted variable bias in anchoring premium estimates: Evidence based on assessed value," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 50(3), pages 789-828, September.
    18. repec:smu:ecowpa:1301 is not listed on IDEAS
    19. Wright, Danika & Yanotti, María B., 2019. "Home advantage: The preference for local residential real estate investment," Pacific-Basin Finance Journal, Elsevier, vol. 57(C).
    20. Vrinda Kadiyali & Jeffrey Prince & Daniel Simon, 2014. "Is Dual Agency in Real Estate a Cause for Concern?," The Journal of Real Estate Finance and Economics, Springer, vol. 48(1), pages 164-195, January.
    21. Yu Liu & Paul Gallimore & Jonathan Wiley, 2015. "Nonlocal Office Investors: Anchored by their Markets and Impaired by their Distance," The Journal of Real Estate Finance and Economics, Springer, vol. 50(1), pages 129-149, January.

    More about this item

    Keywords

    heterogeneous preferences; housing market; imperfect information on price distributions; school quality; search costs;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L49 - Industrial Organization - - Antitrust Issues and Policies - - - Other
    • L63 - Industrial Organization - - Industry Studies: Manufacturing - - - Microelectronics; Computers; Communications Equipment

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ces:ceswps:_8337. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Klaus Wohlrabe (email available below). General contact details of provider: https://edirc.repec.org/data/cesifde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.