Competitive Forces in the Sharing Economy: Airbnb vs Hotels

Abstract

The entry of flexible-capacity home sharing platform, Airbnb, has potentially altered the structural landscape in traditional industries characterised by fixed capacity and stochastic and unpredictable customer demand. The paper exploits the staggered penetration of Airbnb across South African cities, showing that RevPAR if anything expanded after the entry of Airbnb. While the study finds no evidence of adverse impacts of Airbnb on hotel RevPAR, the findings show that the entry of Airbnb led to a decrease in RevPAR of budget hotels. A triple-difference design that compares variations in RevPAR of hotels relative to guest houses and lodges that were unaffected by Airbnb supply provides further supporting evidence that while Airbnb has had no negative impacts on the hotel industry in general, however, its impact is more pronounced during periods of peak demand, consequently disrupting the pricing power of hotels. To increase RevPAR, hotels should systematically change their pricing models to account for flexible capacity by rethinking the wisdom of seasonal pricing and reduce prices during peak seasons to avoid inviting more competition from Airbnb. Theoretical and practical implications are further discussed.

Keywords

• airbnb
• revpar
• disruptive innovation
• seasonal pricing
• triple-difference