Analysis on whether AirBnB can be seen as a substitute for other short-term lodging includes Koh and King (2017), which inspects the effect of AirBnB and short-term rental units on hotel rental demand by interviewing and analyzing responses from employees of mid-tier Singaporean hotels. After discussing and reviewing the possibility of shifts in demand, the researchers deemed that while the current status of AirBnB and other short-term rental services did not interfere or diminish demand for traditional hotel units, they did possibly pose a threat to future demand. The authors did not opt to attempt to quantify this conclusion, instead relying on qualitative analysis to defend and justify this idea. Further quantitative analysis could be…show more content… Theoretical Discussion
Wilking describes the AirBnB market as monopolistically competitive after coming to the conclusion that property owners listing their homes or apartments on AirBnB present an inherently differentiated product—no two listings are identical as each AirBnB can be distinguished based upon convenience, appeal, appearance, or any number of qualitative characteristics. Consequently, the demand for AirBnBs can be understood as being downward sloping and a function of a given unit’s price (both absolute and relative to others), desirability, and the total supply of units.
In addition to market structure, an awareness of the status of tax remittance before and after the establishment of agreements with AirBnB is vital in understanding host pricing structures and profit maximizing strategies. Prior to the implementation of tax remitting systems, hosts were obligated to remit their vacation rental taxes themselves. That is to say, if one rented out a room in their home and received income from it, they were obligated to pay a share of these gains in taxes to their municipality at the rate of the tax. However, as opposed to hotels and other formal temporary occupancies, an AirBnB unit’s location and ownership information is not published or presented without first booking a stay. While relative location can be seen, it is impossible to pinpoint an exact address from a listing. Because of this, it is quite difficult to enforce the remittance of these taxes and owners…show more content… When solving for a profit maximizing price, ceteris paribus, it becomes apparent that the optimal price for a remitting host is greater than that of an evading one as they pass on a portion of the tax to the consumer. This is often represented graphically as an inward shift of the supply curve with the scale of the shift being equal to the size of the tax. This is present in Figure 2, where the original equilibrium represents a tax-exclusive price and the shifted supply curve intersecting the original demand represents a tax-inclusive price. Remitting hosts would best be described in Figure 2 as those resting on supply curve S2, while non-remitting hosts would remain on curve S and supply a greater quantity for any given