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Value for Money and Selection: How Pricing Affects Airbnb Ratings

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  • Christoph Carnehl
  • Maximilian Schaefer
  • Andre Stenzel
  • Kevin Ducbao Tran

Abstract

We investigate the impact of prices on ratings using Airbnb data. We theoretically illustrate two opposing channels: higher prices reduce the value for money, worsening ratings, but they increase the taste-based valuation of the average traveler, improving ratings. Results from panel regressions and a regression discontinuity design suggest a dominant value-for-money effect. In line with our model, hosts strategically complement lower prices with higher effort more when ratings are relatively low. Finally, we provide evidence that, upon entry, strategic hosts exploit the dominant value-for-money effect. The median entry discount of seven percent improves medium-run monthly revenues by three percent.

Suggested Citation

  • Christoph Carnehl & Maximilian Schaefer & Andre Stenzel & Kevin Ducbao Tran, 2023. "Value for Money and Selection: How Pricing Affects Airbnb Ratings," CRC TR 224 Discussion Paper Series crctr224_2023_411, University of Bonn and University of Mannheim, Germany.
    • Handle: RePEc:bon:boncrc:crctr224_2023_411
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    More about this item

    Keywords

    Rating Systems; Dynamic Pricing; Asymmetric Information;
    All these keywords.

    JEL classification:

    • D18 - Microeconomics - - Household Behavior - - - Consumer Protection
    • D25 - Microeconomics - - Production and Organizations - - - Intertemporal Firm Choice: Investment, Capacity, and Financing
    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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