Why are flexible booking policies priced negatively?

Abstract

This work suggests a new direction to look at when explaining seemingly counterintuitive findings. Using data from 497,509 Airbnb listings in 44 cities of the world, we confirm a negative relationship in the peer-to-peer tourist accommodation market between flexible cancellation policies and nightly price, as well as between the possibility of instant booking and price. This phenomenon had been hypothesized to be caused by emotional factors that would go in the opposite direction to the monetary incentives. However, the economic analysis presented in this paper reinforces the idea that the functioning of these types of markets and, in particular, the vectors that determine supply are not very different from those that govern traditional markets.