Examining the sources of pricing power on Airbnb

Pricing power, a firm's ability to set prices above the competition without tempering demand, is a critical concern for any business. However, it has received little attention in the Airbnb pricing literature, although revenue maximization through effective pricing is a key priority for many Airbnb hosts. The Airbnb pricing literature has mainly examined price differences among diverse Airbnb properties, which fails to capture pricing power, as the properties being compared do not compete for the same guest segments. To address this gap, the present study examines pricing power and its sources on Airbnb. Drawing on the pricing power literature, the study develops a measure of pricing power based on a property's ability to set prices higher than the average price set by similar properties on Airbnb. Using data from thousands of Airbnb listings in Denver City from 2019 (before the COVID outbreak), the study estimates a model in which a property's pricing power is regressed on a range of property-, host-, and guest-related factors. The findings show that the most significant drivers of a property's pricing power are guest capacity (-), competition (-), distance (+), and booking price (+). The study discusses the implications of these findings.