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

Danielle Lewis and Randy Anderson

Real Estate Economics, 1999, vol. 27, issue 3, 543-560

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.

Date: 1999
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