Sharing Economy on the Example of Airbnb

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The concept of the sharing economy has been gaining popularity in recent years. It goes in line with the standards of digitalization, inclusiveness, and sustainability. The term “sharing economy” refers to an economic model based on peer-to-peer activities of exchanging, acquiring, and providing services and goods (Chappelow, 2020). This is often done through various digital platforms that help buyers and sellers to connect. The sharing economy’s positions are particularly strong in the hospitality industry. One of the companies which dominate this sphere is Airbnb.

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Many academic articles concentrate on the impact of the sharing economy on the hospitality industry: the challenges and the opportunities it brings, particularly in connection to Airbnb’s operations. It is an online company that offers arrangements for lodgings and focuses on short-term peer-to-peer rentals (Ikkala & Lampinen, 2015). Airbnb provides opportunities to book a private house (apartment), a private room, or a shared room (Ke, 2017). Users should create profiles through which they can make a listing or book accommodation (Ikkala & Lampinen, 2015). After the stay, an owner and a client are expected to rate each other.

Some studies focus on the positive sides of this type of hospitality. One research suggests that Airbnb can attract more tourists to low-income areas, which would have a positive impact on local economic activities and allow people “to generate additional revenues” (Ke, 2017, p.15). Moreover, it can make accommodations potentially more affordable to travelers (Ke, 2017). Another paper concentrates on psychological benefits property owners can derive from participating in the sharing economy operations. Having examined Airbnb’s hosts’ motivation, the authors conclude that they participate in this economic activity both for financial reasons and because of social gratification they receive. Owners seem interested in meeting new people from other cultures, though they often tend to choose ones who are in some way similar to them (Ikkala & Lampinen, 2015). Notably, the importance of social factors tends to grow over time (Ikkala & Lampinen, 2015). Clients can also benefit from such interactions – having hosts who is ready to help and communicate can enhance their travelling experiences.

Though there are many benefits to the sharing economy, it also has disadvantages which have to be considered. One research states that “the increased ability to homeshare has led to increases in both rental rates and house prices” (Barron et al., 2018, p. 33). It has motivated some owners to switch from offering long-term lodgings to short-term ones; therefore, controlling such transitions can help to curb increases in prices (Barron et al., 2018). Other critics of Airbnb claim that this business model is based on “self-interest rather than sharing” and may contribute to the reduction of prices in the industry (for instance, Airbnb services have lowered hotel revenue in some areas) (Quattrone et al., 2016, p. 1385). Quattrone et al. (2016) state that some regulations in Airbnb operations are required, but it is crucial to decide when, where, and how to impose these restrictions. The authors suggest that cities should rely on real-time data analysis to make policy decisions; mainly, it is important to follow how touristic zones change over time (Quattrone et al., 2016). However, controlling the operations of such a platform as Airbnb requires resources and dedication, and, therefore, can be challenging.

It is important to consider Airbnbs business model in greater detail. The company generates revenue by charging 3% from clients who wants to book accommodation and 10% from hosts. Therefore, their profit depends on the number of listings (which rely on the level of competition in the industry) and on rental prices. The closest rival of Airbnb among online hospitality platforms is Booking.com, but it predominately concentrates on hotel reservations. The majority of hotels themselves do not have resources to compete with Airbnb in terms of short-term, affordable accommodation. It will demand time, money, and, more importantly, creativity and innovations to successfully enter this market and establish a reputation similar to the one Airbnb has at the moment.

It might be relevant to look at how price formation occurs in Airbnb operations. Traditionally, price determinants include hotel location, services it provides, the number and proximity of competitors, and quality signaling factors (star ratings and online customer ratings) (Wang & Nicolau, 2017). Though accommodation location (the farther the accommodation is from the city center, the lower its price) and services provided play a significant role in Airbnbs prices, stars and chain affiliation are irrelevant (Wang & Nicolau, 2017). Host attributes play a significant role instead (Wang & Nicolau, 2017). The owner’s status on the platform (‘superhost’ status means higher prices), identity verification, and the number of host’s listings are important (Wang & Nicolau, 2017). As other research suggests, potential clients profiles can be a decisive factor when hosts have several to choose from (Ikkala & Lampinen, 2015). Therefore, in the sharing economy peer-to-peer operations, online profiles of both parties can be considered significant determinants of prices and the overall success of client-supplier communication.

Thus, since there are few powerful competitors to Airbnb at the moment, and the company does not directly depend on the clients or suppliers to receive stable revenue, one can claim that from the perspective of Porter’s Five Forces model, Airbnb’s positions on the market are quite strong. There are several challenges that the sharing economy brings to the hospitality industry, but there are also benefits that have to be considered. Since restricting Airbnb operations proves to be difficult, it can be suggested that its rivals try to concentrate on innovations and developments they can introduce to compete with the company successfully.

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References

Barron, K., Kung, E. & Proserpio, D. (2018). The sharing economy and housing affordability: evidence from Airbnb. In Proceedings of the 2018 ACM Conference on Economics and Computation (EC’18). Association for Computing Machinery, New York, NY, USA.

Chappelow, J. (2020). Sharing economy. Investopedia.

Ikkala, T., & Lampinen, A. (2015). Monetizing network hospitality: hospitality and sociability in the context of Airbnb. In Proceedings of the 18th ACM conference on computer supported cooperative work & social computing (pp. 1033-1044). Association for Computing Machinery, New York, NY, USA.

Ke, Q. (2017). Service providers of the sharing economy: who joins and who benefits? In Proceedings of the ACM on Human-Computer Interaction, 1(CSCW), 1-17.

Quattrone, G., Proserpio, D., Quercia, D., Capra, L., & Musolesi, M. (2016). Who benefits from the “Sharing” economy of Airbnb? In Proceedings of the 25th international conference on world wide web (pp. 1385-1394). International World Wide Web Conferences Steering Committee, Republic and Canton of Geneva, CHE.

Wang, D., & Nicolau, J. L. (2017). Price determinants of sharing economy based accommodation rental: A study of listings from 33 cities on Airbnb.com. International Journal of Hospitality Management, 62, 120-131.

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BusinessEssay. 2022. "Sharing Economy on the Example of Airbnb." January 24, 2022. https://business-essay.com/sharing-economy-on-the-example-of-airbnb/.

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