How Incumbents Beat Disruption? Evidence from Hotel Responses to Home Sharing

Abstract

As the sharing economy continues to disrupt incumbent services, whether and how incumbents
respond to the competition remains largely unknown. We investigate how incumbents can utilize management responses – a managerial intervention to guest reviews - to exploit performance improvement opportunities in guest reviews and sustain competitive advantage facing increased competition from home sharing. Our method integrates quasi-experiments, topic modelling, and deep learning techniques to not only estimate the impact of home sharing but also unveil the performance improvement mechanism. The findings reveal distinctive management response strategies across hotel price segments after home sharing’s entry, which lead to divergent performance outcomes in guest satisfaction and sales. Regardless of their price segments, any hotel that responds more actively to guest reviews demonstrates improved guest satisfaction in service areas where home sharing leads (e.g., check-in/out, cleanliness, sightseeing opportunity, and room conditions) and achieves higher sales. In contrast, hotels that respond less to guest reviews appear to lose guest satisfaction and sales to not only home sharing but also peer hotel cohorts that respond more. Our study contributes to the literature on the intersection of service operations and technology and provides timely implications that can inform incumbents’ response strategies to disruptions in the ever-changing business world.

Keywords: Sharing economy, incumbent firms, management responses, difference-in-differences, deep learning