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The Welfare Effects of Peer Entry in the Accommodation Market: The Case of Airbnb

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  • Chiara Farronato
  • Andrey Fradkin

Abstract

We study the 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 locations (New York) and times (New Years Eve) when hotels are capacity 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, 2018. "The Welfare Effects of Peer Entry in the Accommodation Market: The Case of Airbnb," NBER Working Papers 24361, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:24361
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    Cited by:

    1. Manav Raj & Arun Sundararajan & Calum You, 2020. "COVID-19 and Digital Resilience: Evidence from Uber Eats," Papers 2006.07204, arXiv.org.
    2. Siraj, Ibrahim & Hassan, M. Kabir & Maroney, Neal, 2020. "Product demand sensitivity and the corporate diversification discount," Journal of Financial Stability, Elsevier, vol. 48(C).
    3. Davide Proserpio & Wendy Xu & Georgios Zervas, 2018. "You get what you give: theory and evidence of reciprocity in the sharing economy," Quantitative Marketing and Economics (QME), Springer, vol. 16(4), pages 371-407, December.
    4. Tedds, Lindsay M. & Cameron, Anna & Khanal, Mukesh & Crisan, Daria, 2021. "Why Existing Regulatory Frameworks Fail in the Short-term Rental Market: Exploring the Role of Regulatory Fractures," MPRA Paper 106712, University Library of Munich, Germany.
    5. Aleksander Berentsen & Mariana Rojas Breu & Christopher Waller, 2019. "What is the value of being a superhost ?," Working Papers hal-02305037, HAL.
    6. Wrede, Matthias, 2021. "How short-term rentals are changing the neighborhood," VfS Annual Conference 2021 (Virtual Conference): Climate Economics 242409, Verein für Socialpolitik / German Economic Association.
    7. John Rust & Sungjin Cho, 2018. "Optimal Dynamic Hotel Pricing," 2018 Meeting Papers 179, Society for Economic Dynamics.
    8. Yifeng Peng, 2020. "The Analysis of Blocking Behavior and Pricing: The Case of Airbnb," Business & Entrepreneurship Journal, SCIENPRESS Ltd, vol. 9(1), pages 1-1.
    9. Lopez Cordova,Jose Ernesto, 2020. "Digital Platforms and the Demand for International Tourism Services," Policy Research Working Paper Series 9147, The World Bank.
    10. Edward Kung, 2020. "Innovation and Entrepreneurship in Housing," NBER Chapters, in: The Role of Innovation and Entrepreneurship in Economic Growth, National Bureau of Economic Research, Inc.
    11. Andrew J. Bibler & Keith F. Teltser & Mark J. Tremblay, 2018. "Inferring Tax Compliance from Pass-through: Evidence from Airbnb Tax Enforcement Agreements," Department of Economics Working Papers 2018-06, McMaster University.
    12. Wei Chen & Karen Xie & Jianwei Liu & Yong Liu, 2019. "How Incumbents Beat Disruptors? Evidence from Hotels’ Responses to Home-sharing Rivals," Working Papers 19-11, NET Institute.
    13. Michelangelo Rossi, 2019. "How Does Competition Affect Reputation Concerns? Theory and Evidence from Airbnb," CESifo Working Paper Series 7972, CESifo.
    14. Edward Kung, 2020. "Innovation and Entrepreneurship in Housing," NBER Working Papers 26886, National Bureau of Economic Research, Inc.
    15. Maximilian Schäfer & Kevin Ducbao Tran, 2020. "Airbnb, Hotels, and Localized Competition," Discussion Papers of DIW Berlin 1889, DIW Berlin, German Institute for Economic Research.
    16. Nikhil Vellodi, 2018. "Ratings Design and Barriers to Entry," Working Papers 18-13, NET Institute.
    17. Kei Aoki, 2021. "The Relationship between Well-Being and Knowledge Sharing," Sustainability, MDPI, Open Access Journal, vol. 13(9), pages 1-13, April.
    18. Zhenfeng Liu & Jian Feng & Bin Liu, 2019. "Pricing and Service Level Decisions under a Sharing Product and Consumers’ Variety-Seeking Behavior," Sustainability, MDPI, Open Access Journal, vol. 11(24), pages 1-16, December.
    19. Xu, Minhong & Xu, Yilan, 2021. "What happens when Airbnb comes to the neighborhood: The impact of home-sharing on neighborhood investment," Regional Science and Urban Economics, Elsevier, vol. 88(C).
    20. Erik Brynjolfsson & Xiang Hui & Meng Liu, 2019. "Does Machine Translation Affect International Trade? Evidence from a Large Digital Platform," Management Science, INFORMS, vol. 65(12), pages 5449-5460, December.

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    More about this item

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • D6 - Microeconomics - - Welfare Economics
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
    • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software

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