When legacy businesses are threatened by new competitors, too often they respond by lobbying for regulation to quash them. It’s notable, then, that Marriott recently announced it is starting a new home-rental business, putting the world’s biggest hotel operator in direct competition with Airbnb, the world’s largest home-rental business.
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Many in the hotel industry have dismissed Airbnb or attributed its success to stealing business by running unregulated and untaxed illegal hotels. There has been little hard research on exactly how Airbnb affects the hotel market. But now three professors in hotel management and marketing — Tarik Dogru from Florida State, Makarand Mody from Boston University, and Courtney Suess from Texas A&M — have analyzed Airbnb’s “disruptive impact” in 10 key markets. Their findings make a case for old-fashioned competition.
The sample cities are Boston, Chicago, Denver, Houston, Los Angeles, Miami, Nashville, New York, San Francisco and Seattle. These are the top-performing cities in supply of hotel and Airbnb rooms. The time frame covers the decade after Airbnb was founded in 2008.
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Over this period the available accommodations in these cities dramatically increased, in good part thanks to the entry of Airbnb. The researchers weren’t surprised to find a resulting loss in hotel revenue. For each 1% increase in Airbnb supply in a city, hotel revenue declined by 0.02%.
Given how much Airbnb supply is coming online each year, that can be a big hit to hotels. In New York City in 2016, it could have meant a loss of as much as $365 million depending on the price of the rooms that went unrented because of Airbnb.
The news is brighter for consumers. The arrival of Airbnb has meant more choices — including rooms less expensive than in a hotel — and the resulting competition seems to have brought down room prices in hotels.
The authors say that expanding the supply of rooms also helps cities accommodate more people during peak visiting seasons, or during big events such as a Super Bowl. Beneficiaries of Airbnb also include restaurants and shops where more visitors mean more customers. Dogru, one of the co-authors, notes that some people like staying in a hotel whose name and brand they trust, but Airbnb appeals to people seeking unique experiences that reflect the place they’re visiting.
As with any disruptive new competitor, companies such as Airbnb bring out the regulators. And here the authors have a warning. “The application of excessive legislation driven by the interests of incumbent industries,” they note, “has the potential to stifle innovation that ultimately benefits the consumer” and harms economic growth.
Let the competition continue.