Real estate agencies in Brisbane are dealt with on a daily basis. The focal point of this paper is to analyse firstly to what extent Brisbane real estate agencies match the characteristics of a perfectly competitive industry. Secondly it will examine the pros and cons of the industry in relation to welfare implications using producer and consumer surplus concepts. This paper will not state which market structure real estate agencies fall under, it is just to what extent the agencies fit into a perfectly competitive industry.
Real Estate Industry
There are many papers which argue what market structure real estate agencies fall under. Coiacetto (2006, 1, Online) argues “that it is not necessarily a competitive industry and, in some instances, can be highly oligopolistic.”
GAO (2005, 8, Online) says the industry does have competitive attributes but these are based on non-price variables such as such as quality, reputation, or level of service, than on price.
Entry into the real estate industry is almost free (Goolsbee, 2005, Online) and there are many agencies that operate within the industry. The products sold by real estate agencies are not homogenous products (Coiacetto, 2006, Online). Each product is as unique as the next, in terms of its location, features, building and financing.
When prices increase, the quantity decrease (Graph 1) and new firms enter the market in order to make economic profits. However this does not mean the real estate agents or brokers earn more money. On the contrary, the prices they charge may increase, but the number of houses each sell do not change (Goolsbee, 2005, Online). From this it is evident that the price of products in the real estate market is not affected by the entry of new firms.
A perfectly competitive market is based on a model of perfect competition. For a market to fall under this model it must have a number of firms, homogeneous products, and easy exit and... [continues]
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