Working Paper | 2018

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

by Chiara Farronato and 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 U.S. cities and quantify the welfare effects of Airbnb on travelers, hosts, and hotels. The welfare gains from Airbnb are concentrated in locations (New York) and times (New Year’s 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.

Keywords: peer to peer; accomodations industry; Market Platforms; Market Entry and Exit; Competition; Accommodations Industry;

Language: English Format: Print Find at Harvard Read Now

Citation:

Farronato, Chiara, and Andrey Fradkin. "The Welfare Effects of Peer Entry in the Accommodation Market: The Case of Airbnb." NBER Working Paper Series, No. 24361, February 2018.

About the Author

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Chiara Farronato
Assistant Professor of Business Administration
Technology and Operations Management

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