Schaefer and Tran have a new paper that estimates price competition between Airbnb offerings and hotels in Paris, France in 2017 using granular data on tens of thousands of rooms. They find that, while these offerings are differentiated, the do put downward pressure on each others' pricing power.
Using the estimated models, we assess how Airbnb affects hotel profits and consumer welfare and how much Airbnb hosts value the platform. Our simulations imply that Airbnb increases average consumer surplus and decreases hotel profits substantially.
Specifically, consumer surplus from Airbnb in Paris increases by 32 euro per night per room for a total of 4.3 million euro (about 0.3% of all hotel revenue). Moreover, about a quarter of this is due to lower hotel prices.
Digital platforms have obliterated some traditional marketing channels, e.g., video rental and music stores, but usually some of the traditional channels survive albeit in diminished form, e.g., book stores and taxis. It appears that even if short term rentals do not replace hotels, they still provide some discipline to the market.
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