Collusion in Brokered Markets
67 Pages Posted: 10 Sep 2019 Last revised: 24 Jul 2020
Date Written: July 8, 2020
The U.S. residential real estate agency market presents a puzzle for economic theory: commissions on real estate transactions have remained high for decades even though entry is frequent and costs are low. We model the real estate agency market, and other brokered markets, as a game in which brokers first post prices for customers and then choose which other agents to work with. We show that prices appreciably higher than the competitive level can be sustained (for a fixed discount factor) regardless of the number of brokers by using strategies that condition working with a broker on that broker’s posted prices.
Keywords: Real estate, Repeated games, Collusion, Antitrust, Brokered markets
JEL Classification: D43, L13, L4, R39
Suggested Citation: Suggested Citation