Regulating Professional Players in Peer-to-Peer Markets: Evidence from Airbnb

Abstract

In the early years, service providers on peer-to-peer (P2P) platforms (Airbnb, Uber, Lending Club, etc.) were individuals possessing limited resources. But this picture has changed drastically, with a new class of professional players rising to eradicate the peer-to-peer nature. For example, property managers or individuals who operate multiple properties account for fairly large market shares on Airbnb. The very institutions that the P2P platforms aimed to disrupt seem now their dominating figures. What are the impacts of professional players in a P2P market? Should P2P platforms regulate the participation of professional players? We seek answers to these questions by utilizing a quasi-experimental opportunity when Airbnb announced a policy that caps the participation of professional hosts in several major U.S. cities. We collected data on Airbnb and deployed a plethora of estimations involving matching-adjusted difference-in-differences and synthetic controls using this policy shock to identify the impact of professional hosts. Our findings suggest that the policy led to an increase in Airbnb supply — primarily driven by fewer exits of small unprofessional players — and, consequently, a drop in the market-level price due to the change in market composition. The drop of price, unexpectedly, was followed by a drop in the transaction volume on Airbnb. This is because, by precluding professional players from the planform, Airbnb lost “high-end” consumers (who prefer professional services) to the extent that the lost dominated the expansion of the “low-end” segment (filled with homogenous unprofessional hosts). We find the policy impact is especially salient in markets with a high level of Airbnb penetration and maturity. This research makes the first attempt to reason how the rise of professional players challenges the nature of the P2P economy. The findings have important welfare implications and provide timely and managerially relevant recommendations on supplier management that is centric to any P2P platforms.

Keywords: Peer-to-peer markets, Professional players, Market structure, Platform economics