Dynamic Monopoly in the Rental Market: Evidence from New York City Housing

Abstract

A lack of affordable housing has plagued renters across the world. This paper examines a factor contributing to this crisis: landlord market power. Specifically, it investiagates how frictions influence market power. It introduces a dynamic monopoly model of rental housing markets - incorporating search frictions as in Manning's (2003) monopsony framework - and uses it to estimate landlord rent-setting power in New York City. The model decomposes the residual demand elasticity into the trade-off between rent and tenant move-in/move-out. Using Craigslist and American Housing Survey data, I estimate rent elasticities of move-ins and move-outs to derive the residual demand elasticity. Findings show heterogeneous effects across rent-per-room deciles, with demand elasticities generally ranging from -4 to -7. The most conservative estimate suggests a 9% markup, providing evidence against the hypothesis of no landlord pricing power.

Keywords: Housing rental market Dynamic Monopoly Market Power