Price Cutting Behavior in Residential Markets
Journal of Housing Economics
Changing reservation prices during the marketing of a heterogeneous asset is a basic result of search theory and the theory of pricing under demand uncertainty. Empirical evidence is sparse though, because data regarding price changes are not usually available. Using a unique housing data set that includes the number of list price changes that occur over the listing period, we provide, in this paper, a test of the implications of these theories. Consistent with the theory of pricing behavior under demand uncertainty, we find that owners whose homes trade in thin markets, and owners who have better information about the value of their homes are less likely to change price. On the other hand, owners who have relatively high costs of continuing a search for a buyer are willing to change price more readily, a finding consistent with search theory.
Herrin, William E.; Knight, John R.; and Sirmans, C. F., "Price Cutting Behavior in Residential Markets" (2004). School of International Studies Faculty Articles. 13.