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Residential Real Estate Brokerage Efficiency and the Implications of Franchising: A Bayesian Approach
Author(s) -
Lewis Danielle,
Anderson Randy
Publication year - 1999
Publication title -
real estate economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.064
H-Index - 61
eISSN - 1540-6229
pISSN - 1080-8620
DOI - 10.1111/1540-6229.00783
Subject(s) - real estate , bayesian probability , economics , residential real estate , econometrics , frontier , measure (data warehouse) , cost efficiency , capitalization rate , franchise , industrial organization , microeconomics , business , finance , computer science , real estate investment trust , marketing , database , archaeology , artificial intelligence , history , operating system
This paper provides substantial evidence that real estate brokerage firms choosing to franchise are more cost‐efficient than firms that remain independent. It uses 1995 cost data obtained from a nationwide survey of real estate brokerages to analyze the differences in firm efficiency across firm type—franchised and independent. We estimate a single stochastic cost frontier using Bayesian statistics and measure firm efficiency relative to that frontier conditional on firm type. The results indicate that real estate brokerages are relatively efficient, implying a competitive market, but franchised brokerages are substantially more efficient than their independent counterparts.