Charging renters or not? One-side versus both-side brokerage model for online rental platforms

Abstract

Abstract In this paper, we analyze how an online rental platform should choose between the one-side brokerage model (charging hosts only) and the both-side brokerage model (charging both hosts and renters). We consider a setting where a monopolistic platform connects hosts on one side with renters on the other. Renters are heterogeneous in valuing trust: Type 1 renters undervalue trust and Type 2 renters fully value trust. We first reveal that the existence of Type 1 renters makes it possible for the one-side brokerage model to be the preferable choice for a platform. Our results also indicate that it is more profitable for the platform to adopt the both-side brokerage model rather than the one-side brokerage model when the number of Type 1 renters is small and/or the cost coefficient to enable renter-side trust is small. Finally, we examine how the chosen brokerage model affects social welfare and find that only the one-side brokerage model can generate a win–win outcome for both the platform and the social planner.