Price cutting behavior in residential markets William E. Herrin a , John R. Knight b, * , C.F. Sirmans c a Department of Economics, University of the Pacific, Stockton, CA 95211, USA b Eberhardt School of Business, University of the Pacific, Stockton, CA 95211, USA c School of Business, University of Connecticut, 2100 Hillside Road, Unit 1041 Storrs, CT 06269-2041, USA Received 12 March 2004 Available online 3 September 2004 Abstract Changing reservation prices during the marketing of a heterogeneous asset is a basic result of search theory and the theory of pricing under demand uncertainty. Empirical evidence is sparse though, because data regarding price changes are not usually available. Using a unique housing data set that includes the number of list price changes that occur over the listing period, we pro- vide, in this paper, a test of the implications of these theories. Consistent with the theory of pric- ing behavior under demand uncertainty, we find that owners whose homes trade in thin markets, and owners who have better information about the value of their homes are less likely to change price. On the other hand, owners who have relatively high costs of continuing a search for a buyer are willing to change price more readily, a finding consistent with search theory. Ó 2004 Elsevier Inc. All rights reserved. JEL Classification: D83; R21 1. Introduction Standard price theory does not address well the pricing of heterogeneous commodities with few, if any, close substitutes. Such commodities are usually 1051-1377/$ - see front matter Ó 2004 Elsevier Inc. All rights reserved. doi:10.1016/j.jhe.2004.07.002 * Corresponding author. Fax: +1 209 946 2586. E-mail addresses: bherrin@uop.edu (W.E. Herrin), jknight@uop.edu (J.R. Knight), cf@sba.uconn.edu (C.F. Sirmans). Journal of Housing Economics 13 (2004) 195–207 www.elsevier.com/locate/jhe JOURNAL OF HOUSING ECONOMICS