Listing Services and Game Theory/Braess’ Paradox
https://www.forbes.com/sites/forbesbusinesscouncil/2021/09/14/game-theory-of-listing-services/
Marketing for real estate has become an oligopolized industry due to the growing prevalence of apartment listing services. The general structure of the business model for these apartment listing services is to use the free cash flow they have—generated from real estate companies and listers using the service—to promote their service even further on other platforms. The author of this article makes the assertion that enlisting these services is becoming increasingly ineffective as a means to promote listings as there is no longer an advantage in outsourcing marketing efforts.
The author uses a hypothetical scenario to support this notion, stating that a major listing service is servicing a majority of the listings in Denver, Colorado’s housing market. The author goes on to state that this scenario presents a challenge to anyone paying for the service: if you use the service along with several other real estate companies and listers then you no longer have an advantage, but if you don’t use the service then you have to invest substantial capital and effort to match the exposure that comes from marketing through a large listing service.
The author goes on to suggest that this is a case study whose solution can benefit from game theory. If everyone in this game pay for listing services, then no one will benefit from the exposure of the service because they no longer gain an advantage by outsourcing the efforts and paying more (everyone is getting the same exposure so it is no longer a premium service that grants an advantageous exposure). However, if no one pays for the listing service, then the best response for each player would be to enlist the service as it would give them an advantage in terms of exposure.
While the author does not specifically reference this theory, I believe that this problem is also a loose example of Braess’ Paradox. Because these listing services seem to be the best response for every player in the market, most players would resort to enlisting the service. However, in the event that every player (or a significant number of players) enlists the service, it is no longer an effective response for any player.
In this game, every player has two options: outsource their marketing efforts to a listing service or don’t pay for the service. The author suggests that the better response for a player would be to invest the same capital that would go towards enlisting a service to marketing themselves. I believe that this strategy aligns with what we discussed in class when looking at Braess’ Paradox.