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

Chiara Farronato, Andrey Fradkin

NBER Working Paper No. 24361
Issued in February 2018, Revised in March 2018
NBER Program(s):Industrial Organization, Productivity, Innovation, and Entrepreneurship

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.

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Document Object Identifier (DOI): 10.3386/w24361