Market concentration in real estate brokerage in economic downturns: evidence from spatial agent-based models

ABSTRACT

Anecdotal evidence suggests that firms and individuals participating in property markets, such as real estate brokers, consider that competition among them intensifies during property market downturns. This is at odds with conventional microeconomic theory, which suggests that in a downturn competition will decrease as some firms faced with losses leave the market. We argue that this disconnect may be caused by an unnoticed spatial dimension to competition in these markets, where firms choose the area in which they will operate. We demonstrate using spatial agent-based models (ABM) that a model of firm location in which brokers accept all customers, while customers prefer brokers who are both cheap and nearby, is inconsistent with this phenomenon, and will result in lower market concentration with good market conditions than with bad. Further, we demonstrate that a model of spatial location in which the desire by a broker to restrict market area to appeal to clients within that local area is consistent with expanded market areas by brokers and hence intensified competition during downturns.

KEYWORDS:

• Spatial competition
• spatial firm behavior
• brokerage
• housing
• agent-based modeling

JEL CLASSIFICATION:

• R21
• R30
• C63

Disclosure statement

No potential conflict of interest was reported by the author.