Strategic behavioral pricing of the private residential development market – a simplified experimental approach

Abstract

Purpose

This paper aims to examine the behavior of “rational” residential developers, under game theory, for their pricing strategy in a competitive environment.

Design/methodology/approach

Results show that residential developers cooperate implicitly for long-term benefit, leading to a slow-down in sales. Developers are motivated to deviate from cooperating at the beginning and at the end of successive periods in a sub-market. Relatively high profits, earnable in the first few periods, provide an allowance to undercut prices and improve sales. For the last few periods, the punishment for any deviation from cooperating is insignificant or zero. Note that the first-mover advantage in a new market is evident. On the effect of uncertainty on the developer’s residential prices, results show that as uncertainty increases, prices decrease while price variability increases.

Research limitations/implications

This study highlights the merits of a uniquely simplified experimental research design for the strategic behavioral pricing of the private residential development market using a game theoretic approach.

Practical implications

This study enhances the understanding of the residential development strategy of developers in the residential development market.

Originality/value

There is limited research on pricing strategy for the private residential development market in Asia.

Citation

Ho, D.K.H., Hui, E.C.M., Ho, T.W. and Rengarajan, S. (2020), "Strategic behavioral pricing of the private residential development market – a simplified experimental approach", International Journal of Housing Markets and Analysis, Vol. 12 No. 4, pp. 526-557. https://doi.org/10.1108/IJHMA-03-2013-0018