Communicating quality while evoking loss – How consumers assess extra charges in the Airbnb marketplace

Abstract

The rise of the sharing economy has allowed consumers to choose from hundreds of thousands of diverse accommodations. In this article, we explore the impact of price partitioning on demand. Our findings reveal that partitioning the price into different elements can have a positive impact on demand. We argue that when the price is partitioned into different fees, it draws attention to the rationale behind the fees – such as additional cleaning. While the presence of the fees acts as a signal, we draw upon prospect theory to argue that the amount of the fee is viewed as a loss and thus has a negative impact on demand. We test our arguments using data on Airbnb's across the whole United States and find that price partitioning positively impacts demand, but the costs themselves have a negative impact on demand.