In efficient financial markets, unregulated competitive bidding should bring about the most productive use of an asset and the price paid for that asset should reflect fair value based on its usefulness. In real estate, this is not always the case. For example, there is no substitute for certain pieces of land which gives the owner a bargaining advantage in determining the value of the land. This feature of real estate markets is commonly referred to as:

Question

Quizplus · Accepted Answer

Locational monopoly is the feature of real estate markets that gives the owner of certain pieces of land a bargaining advantage in determining the value of the land. This is because there is no substitute for the location of the land, and therefore, the owner has a monopoly over it. This can lead to the price paid for the asset not reflecting fair value based on its usefulness, as it would in an efficient financial market.

In Efficient Financial Markets, Unregulated Competitive Bidding Should Bring About