Residential Real Estate Brokerage Efficiency and the Implications of Franchising: A Bayesian Approach

Abstract

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. Copyright American Real Estate and Urban Economics Association.

Sorting, Franchising and Real Estate Brokerage Firms

“…As a result, at least in the South and the country, there is lower net income for independents. The finding of lower net income for independent brokerage firms appears to be consistent with the contention by Lewis and Anderson (1999) that franchise firms have lower costs.…”

“…5 Lewis and Anderson (1999) show that franchised brokerage firms have lower costs than independents, but the average firm operates close to its efficient frontier. Franchised firms are more efficient in allocating resources, according to Anderson and Fok (1998), but independents have more scale and technical efficiency.…”

“…In Lewis and Anderson (1999), franchised firms are more efficient at allocating resources. Franchised firms have lower costs per unit than their independent competitors.…”

Ownership forms matter for airport efficiency: A stochastic frontier investigation of worldwide airports

“…Examples of Bayesian analysis on stochastic frontier models include Dorfman (2005a, 2005b), Fernandez et al (1997), Huang (2004), Kleit and Terrell (2001), Koop et al (1995Koop et al ( , 1997, Kumbhakar and Tsionas (2005), Lewis and Anderson (1999),…”

Technical efficiency of African hotels

“…When comparing this research with that undertaken in other fields, it should be considered that this is one of the main fields in economics in which frontier models have been applied, with such diverse methods that range from DEA to econometrics, thereby revealing openness to different approaches that we do not see in other fields. A type of frontier model not yet estimated in tourism is the Bayesian stochastic frontier model, Lewis and Anderson (1999) and Lewis et al (2003). Other novel frontier models, such as the random frontier model, Greene (2004Greene ( , 2005 and the Latent frontier model, Orea and Kumbhakar (2004) have not yet reached the tourism field.…”