Chiara Farronato, Harvard Business School
Chiara Farronato, Harvard Business School
Market Structure with the Entry of Peer-to-Peer Platforms: the Case of Hotels and Airbnb
Market Structure with the Entry of Peer-to-Peer Platforms: the Case of Hotels and Airbnb
02 May 20161:00 PM – 2:30 PM
Faculty and doctoral students only
Location:
Baker Library | Bloomberg Center 103
Organizer:
Online peer-to-peer marketplaces have reduced
entry costs across a variety of in- dustries. These marketplaces allow small
and part-time service providers (peers) to participate in economic exchange,
often in competition with more traditional suppliers. For example, Airbnb
allows almost anyone to host travelers. We use the market for short-term
accommodations to study the determinants and effects of peer-to-peer growth. We
first describe the large heterogeneity of Airbnb’s pen- etration across 50
major US cities and demonstrate that this heterogeneity is, in large part,
explained by proxies for the costs of hotels, the costs of peer hosts, and
demand volatility. Second, we show that, on average, a 10% increase in the size
of Airbnb reduced hotel revenue by 0.4% in our sample. This effect varies
across cities and hotel types: cities with large hotel market power and
midscale hotels experience a bigger reduction in revenue than other cities and
hotel types. Third, we estimate a structural demand model city-by-city to
capture consumer surplus and disentangle Airbnb’s business stealing effects
from market expansion. On one extreme, New York City in 2014, we find that
Airbnb increases consumer surplus by 3% and that over 46% of Airbnb bookings
would not have resulted in hotel bookings had Airbnb not been available. On the
other extreme, in Las Vegas, we find that the
aggregate effect of Airbnb is negligible and that only 18% of Airbnb bookings
constitute market expansion.
Joint work with Andrey Fradkin