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  • June 2022
  • Article
  • American Economic Review

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

By: Chiara Farronato and Andrey Fradkin
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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 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; Airbnb; Digital Platforms; Market Entry and Exit; Competition; Accommodations Industry

Citation

Farronato, Chiara, and Andrey Fradkin. "The Welfare Effects of Peer Entry in the Accommodation Market: The Case of Airbnb and the Accommodation Industry." American Economic Review 112, no. 6 (June 2022): 1782–1817.
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About The Author

Chiara Farronato

Technology and Operations Management
→More Publications

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More from the Authors
  • Is AI the Right Tool to Solve That Problem? By: Paolo Cervini, Chiara Farronato, Pushmeet Kohli and Marshall W Van Alstyne
  • Webmunk: A New Tool for Studying Online Behavior and Digital Platforms By: Chiara Farronato, Andrey Fradkin and Chris Karr
  • Consumer Protection in an Online World: An Analysis of Occupational Licensing By: Chiara Farronato, Andrey Fradkin, Bradley Larsen and Erik Brynjolfsson
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