Airbnb Pricing: What’s the Reason for Discrepancies?
By Elisa Chan, Assistant Professor of Marketing at Ecole Hoteliere de Lausanne (EHL)
Bloomberg recently released the latest edition of its index which ranks locations around the world - taking into consideration some 120 cities - according to rates charged by Airbnb. Among its main findings were that although Miami and Boston took the top two places for the second year running regarding Airbnb pricing, Middle East destinations are now some of the most expensive in the world, with locations such as Tel Aviv, Dubai, Jerusalem, Riyadh and Kuwait City among the top 15.
But how reliable are the data?
According to EHL assistant marketing professor Elisa Chan, there is a challenge in understanding how Airbnb sets its prices.
"From my understanding, Airbnb lets its owners freely set their prices but the website does offer a 'smart pricing' tool to facilitate dynamic pricing according to demand within the Airbnb supply environment. The owners though are at liberty to set prices as they wish."
Chan continues: "The thing that I find most interesting is the discrepancy of ADRs (average daily rates) reported by Airbnb versus the Bloomberg index."
According to the Bloomberg article, Airbnb ADR figures for Tel Aviv ($87) and Jerusalem ($82) are far lower than Bloomberg's figures at $188 and $173 per night respectively. The article points out that Airbnb uses a different methodology to that of Bloomberg, as it includes the rates of units actually booked rather than advertised rates on the Airbnb site.
The article cites industry analysts who suggest that Airbnb pricing in cities such as Dubai and Tel Aviv may be largely due to high hotel rates and the high cost of housing, with short-term rentals being pushed higher by owners wanting a premium over what they could earn renting out their properties for a year.
"For hotels, there are well established benchmarks and strategies to set prices that should more closely reflect willingness to pay by guests," Chan says. "But for P2P (peer-to-peer) accommodation, individual owners may be relying on a much wider range of factors when setting prices."
She agrees that, for the most part, pricing is probably tied to housing costs and the market rate for long-term rentals, which "may not be the best indicator for willingness to pay by transient guests."
"But for consumers, how prices are set may not matter much. You may have people who are adamant about staying at hotels and those who want to live like a local. But in between, there are people who would look at the two as viable accommodation options, not just limited to price comparisons but other factors that come into play in making that decision."
"In my opinion, focusing on this group of people and on a single city like Paris, may yield more valuable insights as to how the two markets are influencing one and other."
Several EHL researchers have been investigating how hotels in specific locations are coping with the threat posed by Airbnb.
In a study focusing on San Francisco, EHL Executive Dean Inès Blal and her co-researchers Manisha Singal of Virginia Tech and Jonathan Templin of the University of Kansas examined Airbnb's impact on the sales growth of hotels in the city and found that Airbnb is disrupting the hotel business. They recommend that hotel managers are aware of the prices and services offered by Airbnb within their locality in order to map out their revenue management strategies.