Hotel Market Matching, Disruption, and Bifurcation with Airbnb
Much theoretical research on market matching has been, done, but has remained purely theoretical and not empirically validated. However the recent rise of the so-called ‘sharing economy’ has given market researchers ample opportunity to study the effects of more dynamic pricing models on the economy overall. Uber and Lyft’s impact have been extensively studied, in, for example, the oft-cited New York Taxi study. However, Airbnb adds even another layer of complexity, in that the prices are set by renters. In this sense Airbnb facilitates a fairly unregulated market, made accessible to anyone.
According to Alvin Roth, an expert on new types of markets, “Once you start looking at marketplaces one of the things you notice is that not all marketplaces are set up so that their job is merely to find a price at which supply equals demand. Those are the commodity markets. But lots of markets, even when they have prices as very important parts of the market, don’t set the price so that supply equals demand.” [1]
Much research is done regarding whether these markets are more efficient and whether they promote social welfare.
These platforms are said to increase market efficiency, but they rarely give public insight into their data. However researchers have attempted to measure this by looking at overall prices.
One study focused on the prices of hotels in the Italian housing market. [2] Interestingly, it was found that there was no generalizable trend for hotels overall, but when looking at lower-end and higher-end hotels separately, there were distinct but opposite trends. In general, many consumers care a lot about price, however, for certain consumers, namely those sponsored by businesses and the very wealthy, price was not an important factor. Since Airbnb tended to attract the price-conscious for weekend getaways and the like, in order to compete with Airbnb, lower-end hotels went from charging high prices, especially on the weekends, to charging lower prices overall and significantly lower prices on the weekends. However, many higher end hotels opted not to even compete with Airbnb and stopped offering lower price rooms as their market share became more distinct. In this sense, the market was made more efficient, as the supply and demand for affordable and luxury stays more closely mirrored consumer preferences. In this sense, Airbnb had a strictly positive impact on the Italian housing market.
However, from a standpoint of consumer social welfare, the impact is more murky. Certainly in lower-cost housing regions, prices were made from a more competitive standpoint, however, in high-cost housing regions, hotel pricing overall could go up, meaning that consumer social welfare would be worse off. Therefore the Airbnb CEO’s claim that Airbnb does not compete with the hotel market is shown to have little basis in reality, and policy makers should consider the impact that integrating Airbnb into their city may have on current residents prices.
- https://qz.com/421547/nobel-prize-winner-alvin-roth-explains-the-hidden-economics-behind-tinder-marriage-and-college-admissions/
- https://www.sciencedirect.com/science/article/pii/S0925527319301197