The impact of online markets on the hotel industry: addressing competition and managing brand reputation

Abstract

In this thesis, we use methods from econometrics to empirically measure and quantify how digital information influences industries and markets. Specifically, we focus on two important areas of marketing: online reputation management, and competition between online and offline markets. In the first part of the thesis, we study the impact of management review responses, a popular reputation management mechanism, on consumer ratings. To do so, we exploit a difference in managerial practice across two hotel review plat- forms, TripAdvisor and Expedia: while hotels regularly respond to their TripAdvisor reviews, they never do so on Expedia. Based on this observation we employ a “difference-in-differences” design to identify the causal impact of management responses on ratings, and show that responding hotels see an average increase of 0.1 stars. We then turn to analyze the mechanisms behind this increase in ratings and show that by responding to reviews, hotels attract consumers who are inherently more positive, and therefore more likely to leave good reviews. In the second part of the thesis, we study peer-to-peer markets and their impact on traditional industries. We do so by looking at Airbnb, a sharing economy pioneer offering short-term accommodation. We combine data from Airbnb and the Texas hotel industry, and estimate the impact of Airbnb’s entry into the Texas market on hotel room revenue. To identify Airbnb’s causal impact on hotel room revenue, we use a “difference-in-differences” empirical strategy that exploits the significant spatiotemporal variation in the patterns of Airbnb adoption across city-level markets. We estimate that in Austin, where Airbnb supply is highest, the impact on hotel revenue is roughly 8-10% for the most affected hotels. Further, we find that affected hotels have responded by reducing prices, an impact that benefits all consumers, not just participants in the sharing economy. The results presented in this thesis have practical implications for firms seeking to improve their operations and marketing strategies, platforms seeking to design better and efficient marketplaces, and consumers who are often not aware of important dynamics that can be helpful in their decision-making process.