Impact of Quality-Tiering in a Sharing Economy Platform : Evidence from Airbnb

Quality certification is one way for online marketplaces and sharing economy platforms to establish trust and reduce quality uncertainty. While prior work has examined the efficacy of third-party quality certification, little attention has been paid to quality self-certification by the platform itself. In this paper, we examine the economic impact of the launch of Airbnb Plus, wherein the platform inspects properties (for a fee) and provides a quality badge that presumably signals high quality of the property, in terms of style, amenities, maintenance, and reliability of the host. Given the relatively small magnitude of the one-time inspection fee and lack of capacity for ongoing monitoring, it is an empirical question as to whether the Plus badge is a credible signal of quality — or just “cheap talk.” The fact that the Plus service was launched in different cities at different times, and individual listings within the cities received the certification at different times, allows us to identify the economic impact of Airbnb Plus using a difference-in-difference estimation strategy, in conjunction with suitable matching methods. We find that Plus certification increases the weekly booking rate of Plus listings by about 7.6% on average (direct effect). On the other hand, a non-Plus listing sees a 1.5% decline in booking rate when one or more neighboring properties receive a Plus certification (externality effect). The net impact of the Airbnb Plus service on the platform itself is an increase in revenues of over $80,000 per year for the average 2-kilometer zone that includes one or more Plus listings, as compared to matched zones without any Plus listings (local platform effect). These empirical regularities raise some intriguing questions for the future of the sharing economy platform, and whether quality-tiering will help Airbnb to more effectively compete against the hotel industry