Mark Tremblay, an assistant professor of economics at UNLV, is analyzing how fee transparency in short-term rentals may influence consumer and host behavior in pricing.
The research, prompted by a European Union edict that fees become more transparent and focusing primarily on the London market, hypothesized that cleaning fees would decrease as a result, and listing prices would go up a tad to compensate. The study was done with colleagues from the CESifo International Research Network.
“What we found is that the reaction on the host side is a bit different depending on the type of host,” Tremblay said. “So some hosts are reducing their cleaning fees, as you would expect, but we’re seeing some hosts are actually increasing their prices by a lot.”
The Federal Trade Commission’s “Junk Fees Rule” prohibits hidden fees in various industries, including short-term lodging. The commission, when announcing the rule late last year, said “unfair and deceptive pricing” put forth by those businesses harmed consumers.
Millions of Airbnb users are utilizing the site’s total-price toggle since its implementation a few years ago. The company has also been outspoken in its support for pricing transparency—endorsing various pieces of legislation aimed at undoing hidden and hotel fees, per a news release.
Airbnb hosts set their prices by comparing their listings to similar ones, Tremblay said. That means the hosts could have been “tricked” by hidden cleaning fees just like consumers and set their listing at a lower price to compete with what they thought were cheap rates among their competitors.
But when total prices become available, those hosts realize they have been charging too little and raise their price, Tremblay and his co-researchers argue.
“This was a result we weren’t expecting,” he said. “And it differs from how we think about how certain other large firms might react to hidden fees. So if you think of the Las Vegas Strip, how they’re reacting to resort-fee transparency, they probably know what prices to set. A random host in a small neighborhood—they have a couple bookings a month. They’re not a big corporation, and so they might be a little bit less aware of what prices they should set, and this impacts them as well.”
Listings that were priced too low initially have increased their price by up to 6%, a dramatic bump relative to the average decrease in cleaning fees, Tremblay said, which was 4%.
Researchers found that consumers were purchasing listings with lower cleaning fees, on average, he said.
Airbnb has proven that it sees the value in transparency by listening to consumers and providing total-price views, Tremblay said. If consumers are the clear winners, he said, then the “losing” side is the hosts who were trying to hit them with high cleaning fees.
Las Vegas is one of the top Airbnb markets because it’s a year-round tourist destination.
Hosts will need to pay attention to competitor prices and how cleaning fees may affect bookings, he said. Regarding the latter, he said, a high cleaning fee may be more congruous with a long-term stay versus short-term, and vice versa, he added.
“That’s been the main lesson we’ve tried to push, is on the host side of like, look—you need to think about this as a pricing tool that’s going to impact how consumers perceive your listing and what kind of bookings you actually get,” Tremblay said.
The FTC rule also requires that hotels be up front with consumers on hidden fees, and Tremblay said the impact of pricing transparency on Las Vegas’ hospitality market would make for an interesting study.
“Our members were already clearly and prominently disclosing resort fees during the transaction before the FTC’s recent ruling,” said Virginia Valentine, president and CEO of the Nevada Resort Association in a written statement to Vegas Inc. “We believe in a level playing field across the lodging and travel industry as it pertains to disclosing fees to allow guests to make informed decisions.”
With total prices available for both Airbnbs and resorts up front, Tremblay said, consumers will have a much easier time comparing prices.
“The markets are quite different,” he said. “Tourists who are coming to Vegas, they’re often coming because of the Strip, and they’re not thinking about Airbnb. And there really aren’t Airbnbs close to the Strip. So, in some ways, they’re serving different types of tourists.”