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The Welfare Effects of Peer Entry: The Case of Airbnb and the Accommodation Industry

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  • Chiara Farronato
  • Andrey Fradkin

Abstract

We study the welfare effects of enabling peer supply through Airbnb in the accommodation industry. We present a model of competition between flexible and dedicated sellers (peer hosts and hotels) who provide differentiated products. We estimate this model using data from major US cities and quantify the welfare effects of Airbnb on travelers, hosts, and hotels. The welfare gains are concentrated in specific locations (New York) and times (New Year's Eve) when hotel capacity is constrained. This occurs because peer hosts are responsive to market conditions, expand supply as hotels fill up, and keep hotel prices down as a result.

Suggested Citation

  • Chiara Farronato & Andrey Fradkin, 2022. "The Welfare Effects of Peer Entry: The Case of Airbnb and the Accommodation Industry," American Economic Review, American Economic Association, vol. 112(6), pages 1782-1817, June.
    • Handle: RePEc:aea:aecrev:v:112:y:2022:i:6:p:1782-1817
    DOI: 10.1257/aer.20180260
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    Citations

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    Cited by:

    1. Mohammed Mardan & Mark J. Tremblay, 2022. "Network Effects: Betwixt and Between," CESifo Working Paper Series 10082, CESifo.
    2. Steinbach, Sandro, 2023. "The Corporatization of Veterinary Medicine: An Empirical Analysis of Its Impact on Independent Practices," 2023 Annual Meeting, July 23-25, Washington D.C. 335481, Agricultural and Applied Economics Association.
    3. Pavanini, Nicola & Braggion, Fabio & Manconi, Alberto & Zhu, Haikun, 2022. "The Value of Financial Intermediation: Evidence from Online Debt Crowdfunding," CEPR Discussion Papers 14740, C.E.P.R. Discussion Papers.
    4. Alexander Theisen & Lynne Kiesling & Michael Munger, 2022. "From Airbnb to solar: electricity market platforms as local sharing economies," Public Choice, Springer, vol. 193(3), pages 141-162, December.
    5. Boto-García, David & Balado-Naves, Roberto & Mayor, Matías & Baños-Pino, José Francisco, 2023. "Consumers' demand for operational licencing: evidence from Airbnb in Paris," Annals of Tourism Research, Elsevier, vol. 100(C).
    6. Ismael Gálvez-Iniesta & José L. Groizard & Ferran Portella-Carbó, 2023. "Sharing my place: the local labor market impact of the P2P technology shock," DEA Working Papers 97, Universitat de les Illes Balears, Departament d'Economía Aplicada.
    7. Peter Q. Blair & Mischa Fisher, 2022. "Does Occupational Licensing Reduce Value Creation on Digital Platforms?," NBER Working Papers 30388, National Bureau of Economic Research, Inc.
    8. Garz, Marcel & Schneider, Andrea, 2023. "Data sharing and tax enforcement: Evidence from short-term rentals in Denmark," Regional Science and Urban Economics, Elsevier, vol. 101(C).

    More about this item

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Restaurants; Recreation; Tourism
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software
    • L88 - Industrial Organization - - Industry Studies: Services - - - Government Policy
    • Z31 - Other Special Topics - - Tourism Economics - - - Industry Studies

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