Competitive effects of Airbnb on the Norwegian hotel market

Abstract

The aim of this thesis is to contribute to the growing literature on the competitive effects of P2P sharing platforms on existing markets, in particular their effect on incumbent firms. I study the case of Airbnb and its effect on the Norwegian hotel market. The analysis is based on a panel data set consisting of monthly hotel data and the number of Airbnb listings in five of the largest Norwegian cities. I first explore the causal effect of the introduction of Airbnb on hotel revenue using a fixed effects model, taking advantage of the variation in the timing of Airbnb establishment across the five cities. I find that a 10 % increase in Airbnb supply decreases hotel revenue by 0.3 %. This effect is around 20 times smaller than the effect on hotel revenue of an increase in hotel supply. However, considering the sharp growth in Airbnb in the latest years, I find that from 2014 to 2015 the increase in Airbnb supply accounted for the same decrease in hotel revenue as the increase in hotel supply. Furthermore, I estimate which hotel segments are most affected, and how the hotels strategically respond to competition from Airbnb. I find that hotels operating in the low and medium price segment are most affected, and that the hotels strategically respond by lowering their prices rather than their occupancy rates. All calculations and estimations have been conducted using Stata version 13.1.