Abstract
The rapid growth of Airbnb listings has represented a challenge for hotels. While most of the existent literature has focused on empirically measuring the impact of Airbnb listings on hotels’ revenues and profitability, the present research is one of the first attempts to develop a theoretical framework based on game theory to model a hotel’s best response in terms of investment to improve the quality of service and pricing strategy. The model results suggest that hotel location, the average value of long-term rental contracts and the density of available apartments influence the hotel strategy.
Highlights
Airbnb has changed the market structure in the accommodation industry in less than a decade; according to the information provided by an online platform, in 2017, Airbnb was present in 191 countries with more than 4 million listings available
Applying the same discount for the following apartments until the return equals that from offer long-term contracts to residents, the number of apartments available at Airbnb will be (n): Considering the expression for n given by equation 3, the function that must be maximized by the hotel manager is: To solve the model, the first derivative with respect to price equals 0; determining an expression for the price that is substituted in the hotel profit condition allows us to apply optimization conditions for the investment in quality, obtaining as a final result the optimum values for the investment in quality and the hotel price
A higher apartment density implies a lower investment in quality; too many apartments act as a negative incentive for investing in quality, reducing the value added to hotels with a likely negative impact on the hospitality industry and employment
Summary
Airbnb has changed the market structure in the accommodation industry in less than a decade; according to the information provided by an online platform, in 2017, Airbnb was present in 191 countries with more than 4 million listings available.
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