Expectations Heterogeneity and Excessive Price Sensitivity in the Land Market

This paper analyses price behaviour in the land market in which the Walrasian auctioneer is absent. Sellers are informed about the land value and post their asking prices; buyers are uninformed, have different opinions, and decide whether or not to accept the sellers' offers. In this market, sellers are "price-makers" with probabilisitic market power : they can influence the sale probability through their asking price. Price may be excessively sensitive to unexpected changes in market conditions. Moreover, buyer heterogeneity may accentuate the excessive price sensitivity. It has been shown that, the more heterogeneous their opinions, the more sensitive are prices.
JEL Classification Numbers: D40, D43, D82, D84, E44, G12.