Do Lower-Quality Images Lead to Higher Demand on Airbnb?

Abstract

Prior research has shown that high-quality images increase the current demand for Airbnb properties. However, many properties do not adopt high-quality images even when offered for free by Airbnb. Our study provides an answer to this puzzling observation. We develop a structural model of demand and supply of Airbnb properties, where hosts strategically choose image quality for their properties. Using a one-year panel data from 958 properties in Manhattan, we find evidence that a host’s decision to use high-quality images entails a trade-off: high-quality images may attract more guests in the current period, but if the property does not live up to the expectations created by the image quality, then they risk disappointing guests. The guests would then leave bad no reviews at all, which would adversely affect future demand. Counterfactual policy simulations show that Airbnb could significantly increase its profits (up to 18.9%) by offering medium-quality images for free to hosts or providing free access to a choice between high-quality and medium-quality images. These policies help improve Airbnb's profits since they enable the hosts to upgrade their image quality to an extent that aligns with their property quality.

Keywords: Image Analytics; Sharing Economy; Deep Learning; Dynamic Structural Model; Professional Image Adoption

JEL Classification: M31, C45, C11, C36, L85, L10, R30