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Airbnb and the Super Bowl: Conventional Wisdom Turned Upside Down

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The Super Bowl usually gives host cities the chance to slam travelers with exorbitant lodging rates, but that didn’t happen this year in the Bay Area. Instead, Airbnb allowed locals to rent out their extra bedrooms, keeping prices at reasonable levels.

The Pursuit of a Rental: Hunting or Shopping?

Every year, the Super Bowl host city has to gear up for a weekend full of festivities, food, drinks and, most importantly, the big game. Chief among the logistics is lodging. Hotels and resorts get reservations months in advance in order to guarantee people their rooms, normally at heavily increased rates given the influx of consumers and sports fans. But thanks to the boom in the sharing economy in recent years, many people are resorting to different methods of lodging, transportation, etc. Most notable is the surge in renting a room or rooms on Airbnb.

If you’ve taken any sort of introductory economics course, the laws of supply and demand seem to be telling you “Super Bowl weekend means huge profits for Airbnb hosts!” However, the opposite – the polar opposite in fact – was the case this past weekend.

Airbnb saw a huge surge in supply in the amount of available rooms , approximately a 45 percent increase compared to other popular weekends. However, the number of guests who rented out available rooms only went up around 25 percent.

Cause and Effect: What’s Actually Going On?

So what gives? Why was the supply for Airbnb rooms so elastic? It seems as if Airbnb hosts in Santa Clara may have drastically overestimated the number of Airbnb’ers for Super Bowl weekend. This, in part, was probably due to the fact that hosts are not explicitly aware of the volume of Airbnb rooms. In that case, you’ve got hundreds of Airbnb hosts unknowingly charging unrealistically high prices simply because they don’t know that their neighbor down the road is charging the same price.

In some ways, this process actually keeps hotels and resorts in check when setting prices for high-demand periods, as they are competing against Airbnb prices. In this case, people trying to reserve an Airbnb room largely saw inflated prices, so they shopped around (seeing as they’re a rational decision-maker that is) and found the best-value options. This includes someone staying at a hotel if the rates are favorable compared to those available on the Airbnb platform.

The difference in the change that our economy is going through lies partly in the concept of long-term and short-term infrastructure creation. Before, if a city had a huge influx of people for a sporting event or other venue, you couldn’t just build new hotels quickly or hire hundreds of new taxis. Instead, since supply was inelastic, prices would skyrocket in response to heightened demand.

In San Fran, it seems specific industries in the economy experienced excess supply instead of excess demand because of the relative ease in creating value where there previously was none. This could prove better for consumers simply because now, instead of overpaying for fear of being locked out of a business exchange entirely, we can shop around for the best one.

Our Take

The sharing economy, while naturally promoting regulation and efficiency, does have its quirks, notably the inflated prices of Airbnb hosts during the Super Bowl due to their overestimation of demand and underestimation of supply.

It’s important to remember that Airbnb by no means had consumers by the collar; they were still able to shop around and find the best price. Consumers were bound to pay a high price regardless of where they stayed during Super Bowl weekend, but the elasticity of supply on behalf of Airbnb ultimately didn’t require consumers to pay gouged prices.

Header image: CBS Local

 

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