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Pros vs Joes: Agent Pricing Behavior in the Sharing Economy

35 Pages Posted: 26 Dec 2015 Last revised: 9 Sep 2016

Jun Li

University of Michigan, Stephen M. Ross School of Business

Antonio Moreno

Northwestern University - Department of Managerial Economics and Decision Sciences (MEDS)

Dennis J. Zhang

Washington University in St. Louis - John M. Olin Business School

Date Written: August 28, 2016

Abstract

One of the major differences between markets that follow a “sharing economy” paradigm and traditional two-sided markets is that the supply side in the sharing economy often includes individual nonprofessional decision makers, in addition to firms and professional agents. Using a data set of prices and availability of listings on Airbnb, we find that there exist substantial differences in the operational and financial performance of professional and nonprofessional hosts. In particular, properties managed by professional hosts earn 16.9% more in daily revenue, have 15.5% higher occupancy rates, and are 13.6% less likely to exit the market compared with properties owned by nonprofessional hosts, while controlling for property and market characteristics. We demonstrate that these performance differences between professionals and nonprofessionals can be partly explained by pricing inefficiencies. Specifically, we provide empirical evidence that nonprofessional hosts are less likely to offer different rates across stay dates based on the underlying demand patterns, such as those created by major holidays and conventions. We develop a parsimonious model to analyze the implications of having two such different host groups for a profit-maximizing platform operator and for a social planner. While a profit-maximizing platform operator should charge lower prices to nonprofessional hosts, a social planner would charge the same prices to professionals and nonprofessionals.

Keywords: Two-sided market, sharing economy, behavioral economics, revenue management, hospitality

Suggested Citation

Li, Jun and Moreno, Antonio and Zhang, Dennis J., Pros vs Joes: Agent Pricing Behavior in the Sharing Economy (August 28, 2016). Ross School of Business Paper No. 1298. Available at SSRN: https://ssrn.com/abstract=2708279 or http://dx.doi.org/10.2139/ssrn.2708279

Jun Li (Contact Author)

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States

Antonio Moreno

Northwestern University - Department of Managerial Economics and Decision Sciences (MEDS) ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

Dennis J. Zhang

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

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