I am answering a question on how the housing market is not perfectly competitive
ID: 1204960 • Letter: I
Question
I am answering a question on how the housing market is not perfectly competitive market. I believe the it is not because prices fluctuate in the market and they are negotionable. Another reason is that the product is not homogeneous, each home is different, the location even again prices. Information provided is not completely open because prices can be negotiated. Barriers of entry, well entry of new firms does not change the price of homes.
My question is the numerous producers and consumers. I am not understanding the meaning enough to provide an answer on why the housing market is not a perfectly competitive market. How can this be explains to help me answer this last reason. Thank you for your help.
Explanation / Answer
As you can think of a perfectly competitive market, since the product is homogenous, no single sellar is influential enough to leave an impact on the price. The number of sellers and buyers are huge and hence, they accept the price without any negotiations.
In case with real estate or housing, there are many buyers and sellers but the product they deal with has some peculiar features that are associated with a particular builder so that they can influence the price within a narrow range. If not, buyers can at least differentiate the firms and hence demand differently. This makes the market demand for housing faced by a typical firm, a downward sloping curve, not a straight line parallel to the quantity axis.
Hence, housing is better described as monopolistically competitive market.
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