Quantity premium in real property markets

Abstract

Using land market data in residential districts of Osaka Metropolitan Area in 1993, we tested the theory of nonlinear pricing. It was shown that quantity premiums prevail in real property markets, i.e., higher unit land prices for greater consumption of land is observed unlike in many commodity markets. We demonstrated that this is due to the irreversibility in changing lot size, the oligopolistic market structure, nondecreasing marginal utility, and/or nondecreasing returns to scale in production.