The Effect of Mortgage Rate Buydowns on Housing Prices:

The model developed in this paper analyzes the effect of builder-financed FHA-VA mortgage subsidies or buydowns on the price of housing. Hedonic pricing equations are estimated for a locationally and qualitatively uniform sample of new tract development homes. The explanatory variables are vectors of physical and financial characteristics. The latter include a continuous variable for discount points paid by builders which is indicative of the magnitude of prepaid finance charges. The results indicate that a substantial portion of mortgage subsidy costs are shifted to buyers in the form of inflated housing prices.     

The Gains from Corporate Selloffs: The Case of Real Estate Assets

Recent financial economics literature has hypothesized that variations in market structure influence the distribution of gains from corporate restructuring between buyers and sellers. We test this hypothesis using data on restructuring involving real estate assets by isolating the effects depending on multiple versus single bidders, acquisition frequency and transaction type. While we find gains for both buyers and sellers, the buyers gain only when they make few purchases. Those firms pursuing an acquisition strategy show no gains around the specific acquisition announcements. Additionally, both buyers and sellers are more likely to have a positive reaction to the announcement when the transaction is property rather than a division or subsidiary.     

USING RESERVE PRICES TO DETER COLLUSION IN PROCUREMENT COMPETITION*

To enhance our understanding of collusion in procurement settings, this paper quantitatively evaluates how the buyer's choice of a reserve price influences the sustainability of two previously devised collusive schemes. If the buyer does not select its reserve price strategically, then collusion may be sustainable for a wide range of plausible discount factors. However, even mildly sophisticated reserve price selection can dramatically shrink the set of discount factors for which collusion is sustainable. These findings support existing arguments that buyers are vulnerable to collusion, but they also suggest that buyers possess tools that may profitably induce sellers to act competitively.     

On the incidence of commissions in auction markets

We analyze the welfare consequences of an increase in the commissions charged by intermediaries in auction markets. Commissions are similar to taxes imposed on buyers and sellers, and standard economics suggests that both sellers and buyers are made worse off by the tax. However, we show that when the buyers' participation constraint binds and when sellers set optimal reservation prices, the level of commissions correlates to participation and reservation prices in such a way that participating buyers strictly gain from higher commissions.     

Experimenting with purchase history based price discrimination

Many purchases of differentiated goods are repeated, giving sellers the opportunity to engage in price discrimination based upon the shopper's previous behavior by either offering loyalty discounts to repeat buyers or introductory rates to new customers. Recent theoretical work suggests that loyalty discounts can be profitable to sellers when customer preferences are not stationary and sellers can pre-commit to prices for repeat buyers, but otherwise returning customers can be expected to pay the same or more than new buyers. This paper reports behavior in controlled laboratory experiments designed to empirically test the impact of these factors on pricing strategies. The results generally support the comparative static predictions of the theoretical model. When customer preferences are fixed over time, sellers attempt to lure customers from their rival. Price pre-commitment for repeat shoppers when buyer preferences vary over time resulted in modest loyalty pricing, but the discounts are not as prevalent as predicted as sellers rarely price below cost. Behaviorally, price pre-commitment to loyal customers is found to reduce prices overall.     

Group identity in markets

We present a laboratory experiment that measures the effects of group identity—one's perceived membership in social groups—on market transactions in an oligopoly market with a few sellers and buyers. We artificially induce group identity using art preferences and college majors in different treatments, respectively. Subjects are randomly assigned into the roles of buyers and sellers and interact repeatedly. We find that the presence of groups influences both the selection of trading partners and the determination of prices. All else equal, sellers are more likely to make offers to ingroup buyers, and the buyers are more likely to accept offers from ingroup sellers. There are considerable intergroup price differentials with the outgroup sellers charging a lower price than the ingroup sellers.     

Competing through information provision

This paper studies the symmetric equilibria of a two-buyer, two-seller model of directed search in which sellers commit to information provision. More informed buyers have better differentiated private valuations and extract higher rents from trade. When sellers cannot commit to sale mechanisms, information provision is higher under competition than under monopoly. In contrast, when sellers commit to both information provision and sale mechanisms, I identify simple conditions under which sellers post auctions and provide full information in every equilibrium, ensuring that all equilibrium outcomes are constrained efficient. Sellers capture the efficiency gains from increased information and compete only over non-distortionary rents offered to buyers.     

Competition and the signaling role of prices

In a market where sellers are heterogeneous with respect to the quality of their good and are more informed than buyers, high quality sellers' chances to trade might depend on their ability to inform buyers about the quality of the goods they offer. We study how the strength of competition among sellers affects the ability of sellers of high quality goods to achieve communication by means of appropriate pricing decisions in the context of a market populated by a large number of strategic price-setting sellers and a large number of buyers. When competition among sellers is weak high quality sellers are able to use prices as a signaling device and this enables them to trade. By contrast, strong competition among sellers inhibits the role of prices as signals of high quality, and high quality sellers are driven out of the market.     

Regulating B2B online reverse auctions through voluntary codes of conduct

In response to real and perceived abuse by market makers, buyers, and sellers, some industry trade groups representing suppliers have developed voluntary codes of conduct, white papers, and other forms of guidance for online reverse auction participants. The intent of these guidelines is to improve both the reverse auction process and relationships between buyers and sellers. This paper examines the rationale for creating guidelines and codes of conduct, and examines their efficacy in regulating reverse auctions to achieve improved outcomes for market makers, buyers, and sellers. Data from primary and related secondary sources indicate that industry-specific codes of conduct and guidelines have not had a favorable impact.     

Mechanism choice and the buy-it-now auction: A structural model of competing buyers and sellers

A striking feature of many online sales platforms is the coexistence of multiple sales mechanisms. Items on eBay, for instance, are frequently offered through auctions, posted prices, and buy-it-now auctions. In this article, I study how this mechanism multiplicity influences the welfare of buyers and sellers. I specify and estimate a structural model of mechanism choice in online markets, in which I consider both sides of the market: On the demand side, buyers' choices among available listings are equilibrium outcomes of an entry game. On the supply side, sellers make equilibrium decisions when choosing sales mechanisms and prices. I estimate this model using data from sales of baseball tickets on eBay and calculate consumer and seller rents in three markets: the actual market with all three sales mechanisms and two counterfactual markets with auctions and fixed prices or only fixed-price listings, respectively. I find that the addition of auctions to fixed-price markets hurts sellers and risk-averse buyers but benefits risk-neutral buyers. Additionally, the consumer surplus increases when buy-it-now auctions are offered but the seller surplus is reduced further. I discuss the intuition for the cause of this result.     

Hot and Cold Markets

This article considers why housing market conditions, including the ratio of buyers to sellers, expected time-to-sale and transaction prices are sensitive to fundamentals. These high sensitivities result from feedback: market participants optimally respond to shocks in a manner that amplifies a shock's initial impact, which in turn elicits further reinforcing responses. For example, a positive demand shock brings more buyers into a market. This improves the bargaining position of sellers, who then sell more quickly, decreasing the stock of sellers in the market. This further increases the relative number of buyers to sellers, amplifying the initial shock.     

A flexible approach to determining financial terms of sale

With high inflation and interest rates the financial or credit terms of a sale are an increasingly important source of foods for buyers and an expensive cost for sellers. This article proposes some guidelines for setting terms of sale policies which may benefit both buyers and sellers. A method for determining the best terms alternative from the buyers perspective is also described.     

Market structure and business performance: An evaluation of buyer/seller power in the pims database

This paper explores the patterns of buyer and seller structure among business units in the PIMS database and how buyer/seller structure is related to profit outcomes, both long-term through the product life cycle and short-term between periods of boom and recession. Businesses with a favourable structure (few sellers, many buyers buying items of low importance) typically maintain margins through the product life cycle, but if there are many sellers facing few and determined buyers, margins and profitability are likely to deteriorate in recession and to continue to decline through the life cycle.     

Optimal Selling Mechanism,Auction Discounts and Time on Market

This article examines the optimal selling mechanism problem in real estate market using mean‐variance analysis and downside risk analysis. When sellers can choose between accepting the first offer above a reservation price or auctions (waiting an optimal and fixed time), sellers having higher risk aversion choose auctions and wait a fixed time while sellers having lower risk aversion choose an optimal reservation price and wait a random time. Positive auction discounts are compensated by reduced risks, and there exists a connection between liquidity risk and conditional auction discount. More (Fewer) sellers will choose to sell their houses through auctions in a hot (cold) market or when holding cost increases (decreases). When sellers choose auctions, sellers having higher risk aversion who have lower holding cost wait longer and obtain higher sale price. Loss‐averse sellers unanimously choose the mechanism of setting an optimal reservation price.     

Negotiation styles of industrial buyers

Much research has been done on negotiation, but little of it has focused specifically on the interactions of industrial buyers and sellers. In this study, a five-category typology borrowed from the organizational behavior literature was tested for its applicability in describing the negotiation behavior of industrial buyers. The results suggest that industrial buyers perceive themselves primarily as collaborative in their dealings with industrial sellers.     

Buyer confusion and market prices

We employ a price setting duopoly experiment to examine whether buyer confusion increases market prices. Each seller offers a good to buyers who have homogeneous preferences. Sellers decide on the number of attributes of their good and set prices. The number of attributes bears no cost to the sellers and does not affect the value of the good to the buyers but adds complexity to buyers’ evaluation of the goods. The experimental results indicate that the buyers make more suboptimal choices and that prices are higher when the number of attributes of the goods is higher. Moreover, prices and profits are higher than those in a benchmark treatment with perfectly rational (robot) buyers.     

Quality infomediation in search markets

We examine the effects of informational intermediation by a third party ‘infomediary’ in a search model with heterogeneous seller qualities and asymmetric information. The infomediary earns revenue by selling a list of accredited sellers (a ‘guidebook’) to buyers and selling accreditations to sellers. We show that such information always improves welfare but can hurt informed buyers (as well as the uninformed) if it is not sufficiently informative about seller qualities. The model also provides a number of insights concerning the private and social incentives to create information, and the determinants and nature of demand for infomediation services by buyers and sellers.     

Market Mechanism Choice and Real Estate Disposition: Search Versus Auction

We propose a model of mechanism choice in the disposition of real estate assets where we consider two alternatives: a search market and an auction. Within the search framework, we derive an equilibrium whereby buyers incur search costs and sellers incur holding costs for the period during which the property is not sold. In the auction alternative, the seller joins an existing pool of sellers in undertaking a multiple–object auction and pays a commission upon sale. Buyers and sellers freely choose their mechanisms, which in equilibrium are optimal given each group's conjectures about the mechanism choice of their counterpart. In equilibrium, an agent cannot benefit from deviating from his choice and each agent's beliefs are consistent with the equilibrium outcome. It is shown that (a) buyers with high search costs will choose auctions because the auction payoff imposes an upper bound on buyers' gains from search, and (b) prices at auctions will be higher. Using vacant lot sales data and a method–of–moment estimator which accounts for the presence of an endogenous discrete mechanism choice variable, we estimated a hedonic regression to detect the price effect. It was determined that, on average, lots sold for $1.44 per square foot more in auctions than in the search market, as predicted by our model.     

INFORMATION REVELATION AND BUYER PROFITS IN REPEATED PROCUREMENT COMPETITION*

I investigate how procurement costs are affected by the information that buyers reveal about sellers' behavior, in a setting with two sequentially offered contracts for which a seller's privately known costs are identical. Expected prices are lowest when sellers learn nothing until all contracts are allocated, are higher when they learn all sellers' price offers as contracts are allocated, and typically are even higher when they learn only the winner's identity, or the winner's identity and price offer. The results suggest that buyers engaged in repeated procurement may pay less by revealing minimal or extensive information, rather than an intermediate amount.