DYNAMIC PRICING IN THE RESALE HOUSE MARKET: THE EFFECT OF BUYER VISITS AND HOUSE RELISTING

Abstract

Pricing resale products such as pre-owned houses and cars is a challenging task, especially in a turbulent market. First, sellers face item-specific demand uncertainty when setting prices for their resale products. Due to the lack of ex-ante information about demand for each unique item, sellers have to adjust the list prices for their products according to the arrival of latest demand information. Second, in a competitive market like the resale house market, sellers have to factor in peer sellers when making price-setting decisions. In this paper, we develop a dynamic structural model for a resale house market, in which forward-looking individual sellers make pricing decisions in the face of demand uncertainty. The policy simulations suggest that the real estate agency could increase the expected gross merchandise volume either by 8.58% if buyer viewing visits could be arranged one day earlier than observed or by 7.84% if each house could get one extra buyer viewing on the first day after the initial listing. We further investigate the impact of house relisting and find that it needs to be combined with house viewing arrangements for positive sales impacts.