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LED Online Seminar - Kevin Tran, University of Bristol
By LED Research Group

Kevin Tran

University of Bristol

will give a presentation on

Value for Money and Selection: How Pricing Affects Airbnb Ratings


We empirically investigate the impact of prices on seller ratings. In a stylized model, we illustrate two opposing channels through which pricing affects overall ratings and rating subcategories. Higher prices reduce the perceived value for money and worsen ratings. However, they select consumers with a higher taste-based valuation. This selection increases the average consumer's satisfaction and improves ratings. Using data from Airbnb, we document a negative relationship between prices and ratings for most subcategories indicating that the value-for-money effect dominates the selection effect. We find no significant relation for the location rating: the value-for-money effect is weaker and offset by the selection effect. We find that entrants who set low entry prices obtain better ratings and higher revenues in the medium run. Our findings suggest that the dominant value-for-money effect in the salient overall rating leads to downward price pressure.

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