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
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: Suggested Citation