Over the Top? Overpricing and Advertising Effectiveness

39 Pages Posted: 28 Nov 2018 Last revised: 30 Apr 2019

See all articles by Moritz Lukas

Moritz Lukas

University of Hamburg

Vito Mollica

Macquarie Graduate School of Management; Capital Markets CRC Limited (CMCRC); Macquarie University, Macquarie Business School

Markus Noeth

University of Hamburg

Stefan Trück

Macquarie University Sydney - Department of Applied Finance and Actuarial Studies; Financial Research Network (FIRN); Centre for International Finance and Regulation (CIFR); Macquarie University, Macquarie Business School

Date Written: November 2, 2018

Abstract

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

Lukas, Moritz and Mollica, Vito and Noeth, Markus and Trueck, Stefan, Over the Top? Overpricing and Advertising Effectiveness (November 2, 2018). Macquarie University Faculty of Business & Economics Research Paper. Available at SSRN: https://ssrn.com/abstract=3277443 or http://dx.doi.org/10.2139/ssrn.3277443

Moritz Lukas (Contact Author)

University of Hamburg ( email )

Allende-Platz 1
Hamburg, 20146
Germany

Vito Mollica

Macquarie Graduate School of Management ( email )

Capital Markets CRC Limited (CMCRC) ( email )

Level 3, 55 Harrington Street
Sydney, 2000
Australia

Macquarie University, Macquarie Business School ( email )

New South Wales 2109
Australia

Markus Noeth

University of Hamburg ( email )

Chair of Banking and Behavioral Finance
WiSo
Hamburg, 20146
Germany
+49-40-42838 3337 (Phone)
+49-40-42838 5512 (Fax)

Stefan Trueck

Macquarie University Sydney - Department of Applied Finance and Actuarial Studies ( email )

North Ryde
Sydney, New South Wales 2109
Australia
61298508483 (Phone)
61298508483 (Fax)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Centre for International Finance and Regulation (CIFR) ( email )

Level 7, UNSW CBD Campus
1 O'Connell Street
Sydney, NSW 2000
Australia

Macquarie University, Macquarie Business School ( email )

New South Wales 2109
Australia

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