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

27 Pages Posted: 3 Jan 2011  

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

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Abstract

Many goods are marketed after first stating a list price, with the expectation that the eventual sales price will differ. In this article, 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 trade-off determines the optimal list price, which is set simultaneously with the seller's reservation price. Comparative statics are derived through a set of 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.

Suggested Citation

Haurin, Donald R. and Haurin, Jessica L. and Nadauld, Taylor and Sanders, Anthony B., List Prices, Sale Prices and Marketing Time: An Application to U.S. Housing Markets. Real Estate Economics, Vol. 38, No. 4, pp. 659-685, 2010. Available at SSRN: https://ssrn.com/abstract=1733772 or http://dx.doi.org/10.1111/j.1540-6229.2010.00279.x

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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