Over the Top? Overpricing and Advertising Effectiveness
39 Pages Posted: 28 Nov 2018 Last revised: 30 Apr 2019
Date Written: November 2, 2018
This study investigates whether the effectiveness of advertising is limited by overpricing of the advertised good. Using a proprietary database of residential property sales and listings, we find that 1) advertising is effective in increasing a good's sale hazard and transaction price and 2) advertising effectiveness is significantly reduced in the presence of overpricing. The decrease of advertising effectiveness with the extent of overpricing suggests that prospective buyers are able to identify significant overpricing. The reduction in advertising effectiveness is less pronounced for atypical properties and in areas with strong price growth. Our findings shed new light on the effectiveness of advertising relative to pricing aspects.
Keywords: Behavioral Economics, Prospect Theory, Real Estate Economics, Housing Markets
JEL Classification: D03, R31, D83
Suggested Citation: Suggested Citation