The Impact of AirBnb on Hotel and Hospitality Industry

The emergence of peer-to-peer platforms, collectively known as the "sharing economy", has enabled individuals to collaboratively make use of under-utilized inventory via fee-based sharing. Consumers have so far enthusiastically adopted the services offered by firms such as Airbnb, Uber, Lyft, and TaskRabbit. The rapid growth of peer-to-peer platforms has arguably been enabled by two key factors: technology innovations and supply-side flexibility. Technology innovations have streamlined the process of market entry for suppliers, have facilitated searchable listings for consumers, and have kept transaction overheads low. Supply-side flexibility is another hallmark of these platforms: Uber drivers can add or remove themselves from the available supply of drivers with a swipe on an app, and similarly other suppliers can readily list and de-list the selection of goods or services they have on offer.

In our work, we focus on the impacts that these peer-to-peer platforms have on incumbent firms, specifically focusing on the case of Airbnb, a provider of travel accommodation and a pioneer of the sharing economy. With Airbnb having served over 50 million guests since it was founded in 2008,1 and a market capitalization eclipsing $30 billion,2 we hypothesize that Airbnb has a measurable and quantifiable impact on hotel revenue in affected areas. Our hypothesis is that some stays with Airbnb serve as a substitute for certain hotel stays, thereby impacting hotel revenue, and that this impact is differentiated: by geographic region, by hotel market segment, and by season. Incumbent firms, despite both facing higher fixed costs and offering less personalized products than peer-to-peer platforms, have only recently started to take competition from platforms like Airbnb as a serious threat. For example, hotel executives have publicly issued largely dismissive statements regarding competitors like Airbnb, arguing that these peer-to-peer platforms are either a niche market or that they target complementary market segments from that targeted by hotel chains. Interestingly, Airbnb appears to also espouse this latter view: according to Airbnb, in many cities, over 70% of Airbnb properties are outside the main hotel districts, 3 suggesting complementarity of their offerings.

Read the full article at Boston University School of Hospitality Administration

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