List Prices, Sale Prices, and Marketing Time: An Application to U.S. Housing Markets

Posted: 23 Aug 2010 Last revised: 1 Oct 2010

See all articles by Donald R. Haurin

Donald R. Haurin

Ohio State University (OSU) - Economics

Jessica L. Haurin

Stanford University

Taylor Nadauld

Brigham Young University

Anthony B. Sanders

George Mason University - School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: August 20, 2010

Abstract

Many goods are marketed after first stating a list price, with the expectation that the eventual sales price will differ. In this paper we first present a simple model of search behavior that includes the seller setting a list price. Holding constant the mean of the buyers’ distribution of potential offers for a good, we assume that the greater the list price, the slower the arrival rate of offers but the greater is the maximal offer. This tradeoff determines the optimal list price, which is set simultaneously with the seller’s reservation price. Comparative statics are derived through a set numerical sensitivity tests, where we show that the greater the variance of the distribution of buyers’ potential offers, the greater is the ratio of the list price to expected sales price. Thus, sellers of atypical goods will tend to set a relatively high list price compared with standard goods. We test this hypothesis using data from the Columbus, Ohio housing market and find substantial support. We also find empirical support for another hypothesis of the model: atypical dwellings take longer to sell.

Keywords: List Prices, Sale Prices, Time on Market, Atypicality, Search Models, Housing Market

JEL Classification: D11, D12, D83, R21

Suggested Citation

Haurin, Donald R. and Haurin, Jessica L. and Nadauld, Taylor and Sanders, Anthony Bown, List Prices, Sale Prices, and Marketing Time: An Application to U.S. Housing Markets (August 20, 2010). Real Estate Economics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1662711

Donald R. Haurin (Contact Author)

Ohio State University (OSU) - Economics ( email )

154 N. Oval Mall
1010G Derby Hall
Columbus, OH 43210-1172
United States
614-292-0482 (Phone)
614-292-9530 (Fax)

Jessica L. Haurin

Stanford University ( email )

Stanford, CA 94305
United States

Taylor Nadauld

Brigham Young University ( email )

Provo, UT 84602
United States

Anthony Bown Sanders

George Mason University - School of Business ( email )

Fairfax, VA 22030
United States

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