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

51 Pages Posted: 6 Mar 2018 Last revised: 25 Jul 2022

See all articles by Chiara Farronato

Chiara Farronato

Harvard University; National Bureau of Economic Research (NBER)

Andrey Fradkin

Boston University - Questrom School of Business

Date Written: February 2018

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 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.

Suggested Citation

Farronato, Chiara and Fradkin, Andrey, The Welfare Effects of Peer Entry in the Accommodation Market: The Case of Airbnb (February 2018). NBER Working Paper No. w24361, Available at SSRN: https://ssrn.com/abstract=3131140

Chiara Farronato (Contact Author)

Harvard University ( email )

1875 Cambridge Street
Cambridge, MA 02138
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Andrey Fradkin

Boston University - Questrom School of Business ( email )

595 Commonwealth Avenue
Boston, MA MA 02215
United States

HOME PAGE: http://www.andreyfradkin.com

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