Competitive Dynamics in the Sharing Economy: An Analysis in the Context of Airbnb and Hotels

67 Pages Posted: 21 Jun 2018 Last revised: 31 Jul 2018

See all articles by Hui Li

Hui Li

Carnegie Mellon University

Kannan Srinivasan

Carnegie Mellon University

Date Written: June 30, 2018

Abstract

The entry of flexible-capacity sharing economy platforms (e.g., Airbnb and Uber) has potentially changed the competitive landscape in traditional industries with fixed- capacity incumbents and volatile demand. Leveraging panel data on hotels and Airbnb, we study how the sharing economy fundamentally changes the way the industry accommodates demand fluctuations and how incumbent firms should strategically respond. The demand estimates suggest that Airbnb’s flexible supply helps recover the lost underlying demand due to hotel seasonal pricing (i.e., higher prices during high-demand seasons) and even stimulates more demand in some cities. The counterfactual results suggest that some hotel types in some cities may benefit from conducting less seasonal pricing and even considering counter-seasonal pricing. Market conditions (e.g., seasonality patterns, hotel prices and quality, consumer composition, and Airbnb supply elasticity) play a crucial role in determining the impact of Airbnb on hotel sales and hotels’ strategic response. Finally, recent Airbnb and policy changes (e.g., higher Airbnb hosting costs due to hotel taxes or lower Airbnb hosting costs due to third-party services and the “professionalism” of hosts) affect the competitive dynamics. The profits of high-end hotels are the most sensitive to the changes in Airbnb hosting costs. Airbnb’s recent attempt to behave more like hotels can increase hotels’ vulnerability to lower Airbnb hosting costs.

Keywords: Sharing Economy, Airbnb, Hotel Industry, Seasonality, Competition

Suggested Citation

Li, Hui and Srinivasan, Kannan, Competitive Dynamics in the Sharing Economy: An Analysis in the Context of Airbnb and Hotels (June 30, 2018). Available at SSRN: https://ssrn.com/abstract=3197969 or http://dx.doi.org/10.2139/ssrn.3197969

Hui Li (Contact Author)

Carnegie Mellon University ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States

Kannan Srinivasan

Carnegie Mellon University ( email )

Pittsburgh, PA 15213-3890
United States

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