Reputation Premium or Discount? Stochastic Prominence and Superhost Pricing on Airbnb

Abstract:

Reputation badges are widely used in digital marketplaces. To investigate their price effects, we develop a consumer search model with stochastic prominence. Under supermartingale exposure algorithms, in which badge visibility probabilistically front-loads badged sellers in search rankings, badged sellers strategically lower their prices to discourage consumers from continued search, as badge visibility increases the price elasticity of demand. Empirically, we test the discount effect of Airbnb’s “Superhost” badge using a regression discontinuity design that exploits the sharp host-rating threshold of 4.8. Obtaining the Superhost badge reduces listing prices by 5.3% with time fixed effects and by 9.5% without them. The discount is heterogeneous: higher-priced listings exhibit larger reductions, with the top quartile showing discounts of 12.9% and 16.3%, respectively, compared with 4.0% and 0.31% for the bottom quartile.

Website: Joosung Lee