Xiao (Betty) Wang, Business Economics and Public Policy, The Wharton School, and Desen Lin, University of Pennsylvania
Abstract: Innovations in sharing economy have allowed platforms to directly connect with consumers, thus utilize goods and services in more efficient ways. The impact of sharing economy on local business conditions and economic landscape is an empirical question. In the context of home-sharing, local services benefit from increased demand from short-term rental consumers but also suffer loss from long-term rental consumers due to substitution effect and rental affordability issues. We use the setting of Airbnb in New York City and detailed foot traffic data to document local business reaction to changing clientele base and quantify the effects of Airbnb on local business diversity. Our research contributes to the understanding of risk and social cost involved in adapting to innovation in platform business models. To quantitatively estimate the effect of home-sharing on business demand, we exploit exogeneous variation in short term rental demand coming from two sources: a law change that mandates Airbnb to comply with zoning codes, and the negative coronavirus health shock that hit short-term rental demand hard and first. Our estimates on the externality of home-sharing on local business conditions could help regulators and business owners to better assess the community impact of innovations in platform economy.