Value for Money and Selection: How Pricing Affects Airbnb Ratings

Innocenzo Gasparini Institute for Economic Research Working Paper Series

51 Pages Posted: 23 Sep 2022

See all articles by Christoph Carnehl

Christoph Carnehl

Bocconi University

Maximilian Schaefer

Institut Mines-Télécom Business School

André Stenzel

Bank of Canada

Kevin Ducbao Tran

University of Bristol, School of Economics

Date Written: August 30, 2022

Abstract

We investigate the impact of prices on ratings using Airbnb data. We theoretically illustrate two opposing channels: higher prices reduce the value for money, worsening ratings, but they increase the taste-based valuation of the average traveler, improving ratings. Results from panel regressions and a regression discontinuity design suggest a dominant value-for-money effect. In line with our model, hosts strategically complement lower prices with higher effort more when ratings are relatively low. Finally, we provide evidence that, upon entry, strategic hosts exploit the dominant value-for-money effect. The median entry discount of seven percent improves medium-run monthly revenues by three percent.

Keywords: Rating Systems, Dynamic Pricing, Asymmetric Information

JEL Classification: D18, D25, D47, D82

Suggested Citation

Carnehl, Christoph and Schaefer, Maximilian and Stenzel, André and Tran, Kevin Ducbao, Value for Money and Selection: How Pricing Affects Airbnb Ratings (August 30, 2022). Innocenzo Gasparini Institute for Economic Research Working Paper Series, Available at SSRN: https://ssrn.com/abstract=4207034 or http://dx.doi.org/10.2139/ssrn.4207034

Christoph Carnehl

Bocconi University

Milan, MI 20136
Italy

Maximilian Schaefer (Contact Author)

Institut Mines-Télécom Business School ( email )

9 rue Charles Fourier
Evry, 91011
France

André Stenzel

Bank of Canada ( email )

234 Wellington Street
Ontario, Ottawa K1A 0G9
Canada

Kevin Ducbao Tran

University of Bristol, School of Economics ( email )

8 Woodland Road
Bristol BS8 ITN
United Kingdom

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