ABSTRACT

Innovation, Concentration and the Residentail Real Estate Brokerage Industry (1989) examined the impact of the following factors on the prices and variety of products in the Residential Real Estate Brokerage Industry:  process and product innovations, change in firm size and industry concentration.  Two differentiated products models are developed: a cartel-fringe model and a two-cartel model.  Equilibrium is characterized as a price market structure pair of a two –stage game where firms first choose market affiliation and then set price.  With a characterization of the cartel and fringe firms’ objective function and optimizing behavior we examine the way technology as a process innovation can affect equilibrium in the cartel- fringe model extended to include costs.  With a model of the seller’s choices among brokerage alternatives that includes buyers search costs, the effects of technology when introduced as a product innovation are studied. Finally the indirect and direct effects of changes in firm size and concentration on equilibrium prices and stable market structure are presented.  Evidence suggests that there exist channels through which industry technological and structural changes on there own could foster a change in the quality and variety of brokerage services.  Nevertheless, this research concludes that a mix of policy approaches is best.  We suggest continued antitrust activity and make specific recommendations for government involvement.