How Does Competition Affect Reputation Concerns? Theory and Evidence from Airbnb

Michelangelo Rossi (Universidad Carlos III de Madrid)

October 9, 2019, 12:30

Room MS 003

Digital Seminar


Review systems are one of the key ingredients in the success of digital platforms. They ensure the quality of the services provided in the platforms and discipline users' behavior. Reviews reveal user's past performances and form their reputation. I study how changes in competition affect the power of reputation to discipline agents' behavior and provide good quality service. I address this question by studying the behavior of Airbnb hosts. First, I develop a model of reputation in which the relative number of hosts and guests affects the value of building a reputation and hosts' efforts. I show that more competition leads hosts to reduce effort. Then, I use a shock-based IV design to identify a negative and significant causal effect of competition on ratings about hosts' effort. To do this, I exploit a change in regulation for Airbnb listings effective in San Francisco in 2017. When the number of competitors surrounding each listing decreases by 10 percent, ratings about hosts' effort increase by more than one standard deviation. These findings suggest that users' performances in digital platforms depend on variations in competition.