Quality Differentiation and Matching Performance in Peer-to-Peer Markets: Evidence from Airbnb Plus

Abstract

Matching makes or breaks peer-to-peer (P2P) platforms. As the platform-based P2P markets shift from their grassroots nature toward elite offerings, will differentiating suppliers by quality increase matching performance? Can P2P markets differentiate certain suppliers without marginalizing others? We seek answers to these questions by leveraging an empirical opportunity on Airbnb, which differentiates listings that meet high quality standards from others through its Plus program in several U.S. cities. Our findings are threefold. First, we find a sizable increase in market-level matching performance after the program launch, that is, a 15.8%–16.2% increase in the number of booked nights. Second, the rise in matching performance is attributed to reduced search frictions, evident in markets with higher discovery and evaluation costs. Third, the Plus program benefits all listing tiers through reduced search frictions, yielding the most benefits to the Plus and non-Plus listings in terms of increased bookings and prices. Regular listings also receive increased bookings because of competitive prices. Our findings hold across multiple robustness checks and offer important insights for platform design and supply management in P2P markets. This paper was accepted by Hemant Bhargava, information systems. Supplemental Material: The web appendix and data are available at https://doi.org/10.1287/mnsc.2020.03920 .