STRATEGIC PRICING BEHAVIOUR IN A DYNAMIC RESIDENTIAL SECTOR: AN EMPIRICAL GAMING STUDY

Abstract

Real estate markets operate in oligopolistic environments where the decisions of each firm have great impact on another's actions. Interactive pricing behaviour is based on game theory, and this paper attempts to investigate pricing behaviour in the real estate pricing regularities in a dynamic and interactive context where a specific experiment is designed to address three research questions. The first research question seeks to find out an observable equilibrium price, and its intrinsic pricing pattern under a situation akin to a real estate setting. The results show that developers tend to cooperate implicitly for long-term benefit but the cooperation compels a sales slow¬down. The developers are motivated to deviate from cooperating at the beginning and at the end of successive periods in a sub-market. The relatively high profits eamable in the first few periods provide an allowance for them to undercut others in order to sell much faster. For the last few periods, their punishment for any deviation (from cooperating) is insignificant or zero. The second research question aims to find out whether the position of moving first or second into a new market is more advantageous. First-mover advantage is evident in the experiment. The third research question aims to investigate the effect of uncertainty on prices. The results show that as the uncertainty increases, the prices are observed to decrease and the variability of prices are observed to increase.