ECONOMIES OF SCOPE AND DENSITY IN THE MARKET FOR REAL-ESTATE BROKERAGE SERVICES

Using a multiproduct translog cost function, this paper examines the c ase for economies of scope and density in the market for residential r eal estate brokerage services. Earlier research that treated output as a homogeneous commodity reported modest economies of scale for this i ndustry. The results of this study suggest that the composition of out put is an important source of these scale economies, rather than simpl y the size of the firm. The economies of scope which we find imply tha t a balanced mix of listing and sales is the least costly type of oper ation, a result borne out by the product mix found in our sample. The results also show product-specific diseconomies of scale, suggesting t hat specialization in either listing or sales may be sub-optimal under the current institutional arrangements present in the market. Finally , market density appears to be, at best, only a nominal source of savi ngs for real estate brokerage firms.