The Rise of the Sharing Economy: Estimating the Impact of Airbnb on the Hotel Industry

TLDR

Peer‑to‑peer markets, collectively known as the sharing economy, have emerged as alternative suppliers of goods and services traditionally provided by long‑established industries. The study investigates Airbnb’s entry into Texas and its decade‑long impact on the state’s hotel industry to assess the sharing economy’s effect on incumbent firms. The authors quantify Airbnb’s entry into Texas and its decade‑long impact on the hotel industry using economic data. In Austin, Airbnb’s presence cuts hotel revenue by 8‑10%, disproportionately affecting low‑priced and non‑business‑travel hotels, while prompting lower room prices that benefit all consumers, especially during peak events like SXSW.

Abstract

Peer-to-peer markets, collectively known as the sharing economy, have emerged as alternative suppliers of goods and services traditionally provided by long-established industries. We explore the economic impact of the sharing economy on incumbent firms by studying the case of Airbnb, a prominent platform for short-term accommodations. We analyze Airbnb's entry into the state of Texas, and quantify its impact on the Texas hotel industry over the subsequent decade. We estimate that in Austin, where Airbnb supply is highest, the causal impact on hotel revenue is in the 8-10% range; moreover, the impact is non-uniform, with lower-priced hotels and those hotels not catering to business travelers being the most affected. The impact manifests itself primarily through less aggressive hotel room pricing, an impact that benefits all consumers, not just participants in the sharing economy. The price response is especially pronounced during periods of peak demand, such as SXSW, and is due to a differentiating feature of peer-to-peer platforms -- enabling instantaneous supply to scale to meet demand.