Wake Up Call: An Analysis of Airbnb's Disruption on the Manhattan Hotel Industry

Abstract

The unprecedented growth of Airbnb, a peer-to-peer (P2P) accommodations rental service, has transformed the competitive landscape for lodging providers, revolution- izing the traditional hospitality industry paradigm. It remains to be seen whether Airbnb has unlocked new economic value by bringing underutilized housing to the market, potentially boosting tourism, or has simply detracted from the economic po- tential of existing hotel stock. This paper examines the impact of Airbnb on hotel performance in Manhattan. I first identify which Airbnb listings are most likely to capture demand from hotels in the area, and then, to estimate the extent to which Airbnb supply affects specific hotel price segments heterogeneously, I express hotel price segment as a categorical variable identifying each of the four price segments I examine. Precisely, my empirical model is interpreted as a difference-in-differences es- timate. In effect, I view Luxury hotels as a control group, unaffected by fluctuations in Airbnb supply, and the lower price segments as treatment groups. I provide evidence to support that Airbnb has decreased the occupancy and pricing power of Midscale hotels, while strengthening the occupancy rates and pricing power of Economy ho- tels. I argue that this is due to a sliding down of the absolute most price-sensitive consumers from Economy to Airbnb, then Economy filling up with (a) the less price- sensitive Economy consumers who are willing to pay more for the comfort of a hotel, and (b) the most price-sensitive Midscale consumers, who can now book Economy rooms before they fill up.