Challenges facing online marketplaces like Airbnb

Challenges facing online marketplaces like Airbnb

ED GLAESER: Tell us about Airbnb, how do you get involved with that company? MICHAEL LUCA: So eBay and Amazon started in the mid 1990s, bunches of others started selling products around the same time. In fact started thinking about how to facilitate dates in the mid 1990s. So there are implications of platforms like eBay and Amazon, one is that markets would be more efficient so prices might come down, your availability to products might go up. But in addition to the efficiency implications, people had explored the equity implications of platforms like Ebay and Amazon. What they had thought about is not only will markets become more efficient, but people posited that markets would also become fairer. There was a great paper that looked at transactions for cars that initiated online. And they had hypothesized that by buying this online where you’re not kind of face to face, and looking at the person, that you might get rid of a lot of the discrimination. And in fact, what they found is that in offline purchases, they saw the same types of discrimination that they had seen before. But in online purchases they had seen most of this discrimination had gone away. And when you look at a platform like Airbnb, they’re making very different design choices. They’re showing you not only the listing where you might stay, but the person you might stay with. They’re giving hosts a lot of flexibility about who was going to stay with them. And we ran an experiment in which we tested for discrimination on the platform, and we found that, GLAESER: How did you do that? LUCA: So we have followed an autostudy methodology that really within economics have been pioneered by Marianne Bertrand and Sendhil Mullainathan. Where we have looked at the names of the guests that were going to be staying somewhere. So we took names that were statistically most likely to be a white person, and statistically most likely to be African-American person. And what we could see is that if you have a name that is statistically more likely to be African-American, that you’re about 16% less likely to be accepted for an Airbnb, relative to the same application with a white sounding name. So eventually Airbnb put together a committee. I’d spoken several times with people at Airbnb about steps they could take to reduce discrimination. In their committee they laid out a series of changes that they were going to make to a platform to try to reduce the amount of discrimination. GLAESER: What else is going on in Airbnb? LUCA: So Airbnb has a few issues that they struggle with. The way that I think about them is, discrimination is one set of issues they’ve been thinking about, taxes are an issue that they’ve been thinking about. So thinking about someone who rents out a place as an Airbnb, should they be paying taxes as income as a individual? Should they be paying taxes at the hotel tax rate? So these are open policy questions that policy makers are thinking about and that airbnb has high powered incentives to try to shape as well. Externalities is an enormous issue that Airbnb struggles with. Thinking about an apartment building, if the person next to you takes their place and sublets it as an Airbnb, and you have a different person staying there every night, this imposes an externality on the neighbors. So policymakers are trying to think through, how do you deal with this externality? GLAESER: Well, there are many cases, for example, if you have a cooperative, or even in a condominium, the building can make the rules. So I certainly feel with those who don’t want their neighbors renting their room as a hotel room. But presumably the coop association could just ban it without the need of actual public regulation, right? LUCA: Sure. So, buildings are making regulations in a lot of these situations. Cities are also getting involved in what the regulation should be. And one feature of the digital age is lots of people who moved into a place weren’t necessarily thinking about even the potential of a platform like Airbnb when they purchased a place, so right? So if short term rentals were allowed in 1995, that may have felt very different than short term rentals being allowed in 2015. GLAESER: Do you think cities are differentially effected by these new tech-networks relative to other places? LUCA: So, when we think about some of the first term generations of online platforms, think about Skype, Amazon, eBay. These disproportionately you might have thought help people living outside of cities. Somebody who can now order something from a city that otherwise would have been unavailable. Somebody who could telecommute from a place that previously would have been inaccessible. But in recent years what we’ve actually seen is a series of platforms that have popped up that require network effect. So they need a certain amount of market thickness for them to successfully launch in an area, and those platforms– GLAESER: Why Uber starts in San Francisco, right? LUCA: Exactly, why Uber starts in San Francisco, and why so many platforms start in San Francisco and New York, and not in more rural areas. In that world there’s been a benefit that at least thus far has disproportionately accrued to urban areas.

Comments (5)

  1. Learn more with our free online course, “CitiesX: The Past, Present and Future of Urban Life”:

  2. This video does not explain airbnbs business model. Hence, the title should not be business model, it should be "Challenges and implications of the emerging business model"

  3. This guy kinda sounds like Jonah Hill.

  4. Listening to someone enthusiastic and knowledgeable talk is a real treat.

Comment here