The impact of demand on market entry: Evidence from Airbnb

Abstract

A key promise of the sharing economy is that peer-to-peer markets are much more flexible than traditional markets when it comes to expanding capacity. This flexibility stems from sharing platforms utilizing existing resources instead of necessitating the acquisition of new resources. We study the effect of demand on market entry for the example of Airbnb in Europe. Our results indicate that demand has a positive effect on entry, especially in cities with high housing costs. Moreover, we find that the offerings of high demand entrants tend to be of lower attractiveness. Our work provides empirical evidence that especially the entry of low-end offerings increases when demand is higher in peer-to-peer markets. These results indicate that with an increase in demand, new potential suppliers expect to have a higher chance to compete in the market, get a share of the overall revenue and thus decide to enter the market.

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