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We study the landlord's optimal strategy
in imposing the real estate brokerage service fee on the prospective
renter. In our analysis we attempt to explain the alleged inconsistent
phenomenon, where landlords only occasionally require tenants to incur
the mediation cost. First, under a complete information setting,
we identify various conditions for the landlord to share the cost of the
middleman's service with the renter. Furthermore, when
asymmetric information is introduced (under which tenants' tenure horizon
is unobservable), we detect a separating equilibrium in which the longer
the tenant's tenure horizon the greater his share in the brokerage commission.
Finally, a set of assumptions and derivations are empirically examined
within the rental housing market framework. |
