Major hotel chains are adapting to compete with rental apps like Airbnb. In 2019, Marriott launched a new service called Homes and Villas, where they rent out homes on short-term rental agreements, like what is done with Airbnb – the hospitality industry’s biggest sharing economy option. As short-term and non-traditional rentals continue to grow, hotel chains are adapting to compete. Homes and Villas is the latest example of how the sharing economy, defined as platforms that facilitate the exchange of goods and services directly between individuals, can drive competition through innovation to the benefit of consumers.
Airbnb is a sharing economy platform that facilitates transactions where property owners can rent out their spaces. By collecting fees from these transactions combined with low overhead, due to not owning each property, Airbnb was able to grow quickly to meet consumer demands.
The flexibility of not owning each space allows Airbnb to better meet surges as there is an incentive for property owners to list their spaces during large events or other influx in demand. This allows the company to quickly expand and accommodate people in a city where the hotels are sold out. For example, Airbnb demand skyrocketed during the 2022 Superbowl in the Los Angeles area, with over 8,200 listings being booked.
In response to Airbnb’s growing popularity, Marriott created their Homes and Villas program to break into the short-term rental market and provide consumers with yet another option.
The effects of Airbnb on the hotel industry are complex and vary by market. Smaller cities see relatively low market penetration by Airbnb. However, in high-demand markets during peak periods, such as New York City on New Year’s Eve, the elastic nature of supply allowed by Airbnb’s model allows property owners to take advantage of the rise in demand and offer visitors a place to stay when there isn’t enough supply from traditional hotels.
This benefits consumers by expanding the supply of rooms when it otherwise would have been impossible. Hotel prices change dynamically in response to demand so the increase in supply from Airbnb listings helps to keep overall hotel prices in check. According to a study highlighted by the Bureau of Labor Statistics, consumers benefited from the competition generated by Airbnb saying, “Findings from the model show that in 2014, Airbnb reduced hotel profits by up to 3.7 percent. That year, Airbnb generated $41 of consumer surplus per room per night and 26 dollars of host surplus. The result, a total welfare gain of $137 million dollars.”
Later studies have shown that Airbnb’s competition with traditional hotels goes beyond just volume and increased supply. A 2018 study found that the number of Airbnb listings did not make the biggest difference in hotel revenue but rather the quality of Airbnb listings and customer satisfaction. If Airbnb listings get good ratings, then hotels in the same market tend to lose revenue and must work harder to compete. By providing a quality alternative this offers consumers more choice as well as incentives for hotels to lower prices. Overall, it shows that Airbnb is often a competitive substitute, and that the hospitality industry is taking them seriously.
Marriott mostly focuses on luxury properties and is selective with what homes it includes in its Homes and Villas program, in contrast with the Airbnb model with a much lower barrier of entry. Marriott’s entry into the short-term rental market is somewhat different from Airbnb’s but it offers more competition to the entire industry giving consumers more options.
Marriott’s Homes and Villas program signals an interest in a growing market made popular by disruptive technology. With increased competition in the hospitality industry from innovative approaches such as Airbnb, consumers benefit from increased competition, especially in high-demand areas. As new technologies continue to provide opportunities for new business models to emerge, consumers benefit from the innovation and continued challenge to existing companies.
Trey Price is a technology policy analyst for the American Consumer Institute, a nonprofit education and research organization. For more information, visit https://www.theamericanconsumer.org/ or follow us on Twitter @ConsumerPal.