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The Impact of a Multiple Listing Service
Author(s) -
Li Lingxiao,
Yavas Abdullah
Publication year - 2015
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 - 10.1111/1540-6229.12076
Subject(s) - commission , listing (finance) , externality , economics , microeconomics , real estate , economic surplus , competitive equilibrium , service (business) , business , finance , welfare , market economy , economy
This article offers a theoretical investigation of the impact of a multiple listing service (MLS) and its optimal size. We study a principal‐agent model of real estate brokerage with multiple agents, where the entry of new agents imposes externalities on the other agents. We solve simultaneously for the equilibrium and socially efficient levels of agents’ effort choices, the size of the MLS and the commission rate. Introducing an MLS reduces the number of agents, increases agents’ effort levels and improves total surplus. Current commission rates of 5–7% appear much higher than the competitive commission rate, leading to too many agents, too much effort by agents and a lower overall surplus. We also find that giving a greater portion of the commission to the selling agent increases effort levels, reduces the number of agents and improves total surplus.