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  3. American Economic Review
  4. June 2022
  5. The Welfare Effects of Peer Entry: The Case of Airbnb and the Accommodation Industry

The Welfare Effects of Peer Entry: The Case of Airbnb and the Accommodation Industry

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Abstract

We study the welfare effects of enabling peer supply through Airbnb in the accommodation industry. We present a model of competition between flexible and dedicated sellers (peer hosts and hotels) who provide differentiated products. We estimate this model using data from major US cities and quantify the welfare effects of Airbnb on travelers, hosts, and hotels. The welfare gains are concentrated in specific locations (New York) and times (New Year's Eve) when hotel capacity is constrained. This occurs because peer hosts are responsive to market conditions, expand supply as hotels fill up, and keep hotel prices down as a result.

Citation

Farronato, Chiara, and Andrey Fradkin. 2022. "The Welfare Effects of Peer Entry: The Case of Airbnb and the Accommodation Industry." American Economic Review, 112 (6): 1782-1817. DOI: 10.1257/aer.20180260

Additional Materials

JEL Classification

  • L11 Production, Pricing, and Market Structure; Size Distribution of Firms
  • L83 Sports; Gambling; Restaurants; Recreation; Tourism
  • L86 Information and Internet Services; Computer Software
  • L88 Industry Studies: Services: Government Policy
  • Z31 Tourism: Industry Studies