The role of offline trade in sharing accommodation

Abstract

AbstractOver the past few years, sharing accommodation—wherein hosts with vacant properties trade with consumers in need of accommodation through an intermediary platform—has emerged as a prevalent business model; popular examples include Airbnb (United States) and Tujia (China). The platform serves as an intermediary that connects two sides of the market and earns a profit by collecting service fees from both parties. Recently, an interesting phenomenon—where property hosts and consumers bypass the intermediary and trade offline—has been widely reported in practice. Motivated by this observation, this article studies the decision making of the platform (e.g., service fees, penalties) in the presence of offline trading. Our analysis reveals several interesting insights. First, in contrast to conventional wisdom, consumers may be harmed by the introduction of offline trading. This provides a novel direction for the platform to mitigate offline trading—advertising the harm that offline trading poses to consumers and advocating for a refusal of offline trade at the source. Further, while the service fees charged from the hosts and consumers are, in some sense, substitutable when offline trade is ignored, the platform should limit the service fees charged to the consumers in the presence of offline trading. Finally, a higher penalty charged on detected offline trade could backfire and lead to a lower profit for the platform; as such, our results caution policymakers to take offline trading into account before making any operational decisions.