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Some might say I have an addiction to Priceline Name Your Own Price, however, what I can tell you is that NYOP rates for 2.5* and 3* hotels are always better than the room options offered through airbnb.

What I cannot understand is why do so many people believe otherwise, claiming that going with airbnb is cheaper?

Likewise, why the landlords are asking for such high rates all the while NYOP and even published Express Deals are often half the price, yet include gyms / pools / breakfasts for the whole family.

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  • $\begingroup$ This might be a better question for travel.stackexchange.com $\endgroup$ – BKay Jul 9 '15 at 17:36
  • $\begingroup$ @BKay, i'm a long-time travel member, but I think economics perspective is what i'm looking for here. $\endgroup$ – cnst Jul 9 '15 at 18:21
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    $\begingroup$ I'd need to know more institutional details to help. What differentiates the products? That is, what do you get with an Airbnb room you don't get with a hotel room? Cancellation protection? Location in residential neighborhoods? Homey feel? A different customer base? Bigger spaces? Closer to public transportation? Bigger variety of spaces? Different amenities? Quieter? Better website? Better customer support? $\endgroup$ – BKay Jul 9 '15 at 18:30
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    $\begingroup$ Travel experts to know travel, economists know economics. Don't you didn't expect travel experts to know the economics of this problem why would you assume that economists know the travel details? Once you really get into the weeds of the problem we will probably see that either 1) The products are actually different 2) Most Airbnb units are mostly unrented 3)The consumers of each product are different in a way that makes it more costly to serve the AirBnB folks $\endgroup$ – BKay Jul 9 '15 at 19:10
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    $\begingroup$ As @BKay is saying, this question will be very hard to answer, expecially in such a short format. There could be any number of reasons, or, it could be that your prior is incorrect. Even though what is being sold is essentially a room, the products are too different to compare on price alone. It's hard to say an equivalent room on priceline is cheaper because of other variables like location, availability and preferences which can be difficult to observe. I would like to see the question left open though because there could certainly be an economic intuition for this phenomenon. $\endgroup$ – Jamzy Jul 9 '15 at 23:46
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It should not be at all surprising that different people choose different offers: the short-stay accommodation market (let's say 1-30 nights) is characterised by a great deal of product differentiation and yield management. Airbnb has reciprocity at play, as guests and hosts switch roles. Additionally, hotels and airbnb hosts have different cost structures and different business models.

Furthermore, consumers have different amounts of information: bounded rationality and satisficing are at work. So even if the offers were identical (they're not), and people's preferences were identical (they're not), then people would still make different decisions.

product differentation

Although you always prefer a lower-cost hotel-room to airbnb, some other people will prefer airbnb, even when presented with identical information. That's because they are not identical offers: they have many different characteristics (flexibility, physical space, presence of host, services offered, location, the P2P feelgood effect, doing business with individuals rather than faceless chains, staying in someone's unique home rather than just another clone room that looks almost identical in most of the world). And different people weight those characteristics differently: no two consumers have identical preferences.

yield management

Different people will also be booking at different times, with varying flexibility. Hotel rooms, (like airline seats), are one of the paragons of yield management, used in many textbooks' explanations of it.

reciprocity

Because with airbnb hosts can become guests, and guests can become hosts; and because reputation plays a major role in the market, there is reciprocity at play: both sides are incentivised to deal fairly with each other, rather than the practice of many hotels of making repeated attempts at getting more and more money from the customer from additional goods and services sold in addition to the basic accommodation, sometimes by using deception in the initial offer.

cost structures

On the supply side, airbnb and hotel rooms have different cost structures: an hotel room that's empty for the night is a wasted asset, and there may be little opportunity to reduce associated costs. Whereas a home without an airbnb guest is still a home, the residents get to have it all to themselves, and don't have to do any additional hosting, laundry, cleaning or tidying.

business models

A hotel's entire income is dependent on it renting its rooms out and selling associated services. For an airbnb host, the airbnb income is usually an additional source of income, a bonus rather than the thing that keeps a roof over the head and puts food on the table. So there is not an urgent and immediate need to find a guest, allowing them to set higher prices and tolerate a lower take-up.

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  • $\begingroup$ this is a great answer on the subject! i only disagree with the reciprocity part -- it is my experience that, perhaps especially in smaller towns, some of the offers are ridiculously overpriced. i recall seeing some kind of a pastor family in a 100k Midwestern city with a big university was offering a bedroom for a single person (with a shared bathroom, IIRC) for more than what even maybe a List Price 2.5* hotel for two people would cost during an off-peak time. $\endgroup$ – cnst Aug 14 '15 at 18:08
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Because women usually book for the family trip, and AirBNB specifically targets women really well with its "social" appeal. Also, Women enjoy looking at photos of the apartment instead of focusing solely on features, and AirBNB allows them to examine a ton of them before making a booking. In contrast, Priceline/Hotwire does not even let you know which property is going to be booked when you browse, and this significantly reduced the "shopping experience", so to speak.

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    $\begingroup$ I imagine you have references to back up your speculation about the role of gender here? As it is, this answer is not defensible as economics. $\endgroup$ – dismalscience Aug 14 '15 at 2:22
  • $\begingroup$ I think it could be a reason, if it is, it is worthwile to think about that but we don't have any evidence if Airbnb targets women really... $\endgroup$ – optimal control Aug 14 '15 at 11:16
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    $\begingroup$ I find the implied idea that men don't enjoy looking at photos entirely fascinating - a certain industry that dare not speak its name would seem to be entirely wasting its time. $\endgroup$ – Lumi Aug 14 '15 at 13:55

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