The Impact of the Sharing Economy on the Hotel Industry: Evidence from Airbnb's Entry Into the Texas Market

Abstract

Spurred by technological advancement, a number of decentralized peer-to-peer markets, now colloquially known as the sharing economy, have emerged as alternative suppliers of goods and services traditionally provided by long-established industries. A central question surrounding the sharing economy regards its long-term impact: will peer-to-peer platforms materialize as viable mainstream alternatives to traditional providers, or will they languish as niche markets? In this paper, we study Airbnb, a sharing economy pioneer offering short-term accommodation. Combining data from Airbnb and the Texas hotel industry, we estimate the impact of Airbnb's entry into the Texas market on hotel room revenue, and study the market response of hotels. To identify Airbnb's causal impact on hotel room revenue, we use a difference-in-differences empirical strategy that exploits the significant spatiotemporal variation in the patterns of Airbnb adoption across citylevel markets. We estimate that each 10% increase in Airbnb supply results in a 0:37% decrease in monthly hotel room revenue. In Austin, where Airbnb supply is highest, the impact on hotel revenue exceeds 10%. We find that Airbnb's impact is non-uniformly distributed, with lower-priced hotels, and hotels not catering to business travel being the most affected segments. Finally, we find that affected hotels have responded by reducing prices, an impact that benefits all consumers, not just participants in the sharing economy. Our work provides empirical evidence that the sharing economy is making inroads by successfully competing with, and acquiring market share from, incumbent firms.