Land Price Formation Under Different Market Mechanisms and Market Conditions

The objective of this research project is to explore price formation for agricultural land in various market segments using states in the former East Germany as an example. Our main hypothesis is that the market mechanism (auction versus negotiations) has a significant impact on realised land prices. Focusing on the role of market mechanisms distinguishes our study from traditional hedonic land price studies that mainly consider individual plot characteristics and regional variables. Based on auction theoretic models, we empirically test the influence of the market mechanism using data for East Germany, which offers a natural experiment to analyse different market segments. Knowledge of the impact of these factors is relevant not only from an academic point of view, but also for stakeholders involved with land transactions. Land sellers such as state agencies or banks may use this information to design land auctions considering their respective objectives, e.g. revenue maximisation. Furthermore, land buyers could better decide whether to use search markets or land auctions for land acquisition and define the best bidding strategies.