The Costs of Free Entry: An Empirical Study of Real Estate Agents in Greater Boston

Panle Jia Barwick, Parag A. Pathak

NBER Working Paper No. 17227
Issued in July 2011
NBER Program(s):   IO   PE

This paper studies the real estate brokerage industry in Greater Boston, an industry with low entry barriers and substantial turnover. Using a comprehensive dataset of agents and transactions from 1998-2007, we find that entry does not increase sales probabilities or reduce the time it takes for properties to sell, decreases the market share of experienced agents, and leads to a reduction in average service quality. These empirical patterns motivate an econometric model of the dynamic optimizing behavior of agents that serves as the foundation for simulating counterfactual market structures. A one-half reduction in the commission rate leads to a 73% increase in the number of houses each agent sells and benefits consumers by about $2 billion. House price appreciation in the first half of the 2000s accounts for 24% of overall entry and a 31% decline in the number of houses sold by each agent. Low cost programs that provide information about past agent performance have the potential to increase overall productivity and generate significant social savings.

download in pdf format
   (638 K)

download in epub format
   (60 K)

email paper

This paper is available as PDF (638 K) or ePUB (60 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w17227

Users who downloaded this paper also downloaded these:
Bernheim and Meer w13796 Do Real Estate Brokers Add Value When Listing Services Are Unbundled?
Fowlie, Reguant, and Ryan w18645 Market-Based Emissions Regulation and Industry Dynamics
Bloom, Schweiger, and Van Reenen w17231 The Land that Lean Manufacturing Forgot? Management Practices in Transition Countries
Dettling and Kearney w17485 House Prices and Birth Rates: The Impact of the Real Estate Market on the Decision to Have a Baby
Hsieh and Moretti w9208 Can Free Entry be Inefficient? Fixed Commissions and Social Waste in the Real Estate Industry
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us