Under the Same Roof: Value of Shared Living in Airbnb

37 Pages Posted: 10 Mar 2018 Last revised: 11 Feb 2019

See all articles by Yao Cui

Yao Cui

Cornell University - Samuel Curtis Johnson Graduate School of Management

A. Yesim Orhun

University of Michigan, Stephen M. Ross School of Business

Ming Hu

University of Toronto - Rotman School of Management

Date Written: February 8, 2019

Abstract

An important difference between lodging sharing economy marketplaces (e.g., Airbnb) and traditional hotels is that the guest may be sharing the property with the host. Due to the shared living it enables, Airbnb blurs the line between economic and social exchanges. In this paper, using Airbnb as a relevant application, we study how the social exchanges affect transaction prices in a sharing economy. We first offer empirical evidence that the guest's desire to stay with the host impacts transaction prices in Airbnb. In particular, we show that an exogenous shock that increased the guest's willingness to stay with the host increased the transaction prices of listings where the guest shares the property with the host, relative to listings where the guest rents the entire property. The empirical evidence thus suggests that the guest may obtain a utility from staying with the host, which we term the social utility. We then theoretically investigate the implications of social utility for the sharing economy participants (i.e., the service user and the service provider), the platform, and the social planner. We find that although the social utility mutually benefits both sides of the market, it may result in an incentive misalignment between the sharing economy platform and the service provider, as well as between the sharing economy platform and the social planner. Moreover, due to the existence of social utility, a higher commission rate charged by the platform to either side of the market can actually lead to a higher transaction probability and a higher social surplus.

Keywords: sharing economy; Airbnb; pricing; causal inference; natural experiment

JEL Classification: C23, D03, D4, D6, L83, M21, M31, O35

Suggested Citation

Cui, Yao and Orhun, A. Yesim and Hu, Ming, Under the Same Roof: Value of Shared Living in Airbnb (February 8, 2019). Available at SSRN: https://ssrn.com/abstract=3136138 or http://dx.doi.org/10.2139/ssrn.3136138

Yao Cui (Contact Author)

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Ithaca, NY 14853
United States

A. Yesim Orhun

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

701 Tappan Street
Ann Arbor, MI MI 48109
United States

Ming Hu

University of Toronto - Rotman School of Management ( email )

105 St. George st
Toronto, ON M5S 3E6
Canada
416-946-5207 (Phone)

HOME PAGE: http://ming.hu

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