Competition and Reputation in an Online Marketplace: Evidence from Airbnb

Abstract

This paper studies how competition affects the role of reputation in encouraging sellers to exert effort. More competition disciplines sellers, but at the same time, it erodes reputational premia. This paper identifies whether one effect dominates the other using data from Airbnb. I exploit the introduction of a short-term rental regulation effective in San Francisco in 2017 that halved the number of short-term listings on the platform. I focus on hosts who are present on the platform before and after the regulation, and I identify a negative causal effect of the number of competitors on ratings about hosts’ effort. I extend this result with two other measures of effort: hosts’ response rate and response time. I confirm that hosts exert less effort when the number of competitors increases. The rate of responses within 24 hours decreases, and response time increases. This paper was accepted by Matthew Shum, marketing. Funding: This work was supported by the Ministerio de Economía, Industria y Competitividad (Spain) [Grant ECO2016-78632-P]. Supplemental Material: The online appendix and data are available at https://doi.org/10.1287/mnsc.2023.4758 .