How Elasticity Helps AirBnB Owners Make More Money

The Toronto Star reported on a startup called Beyond Pricing that is helping AirBnB owners increase revenues from their short-term rentals by figuring out the highest price they can charge.

The company using a dynamic pricing algorithm like those used by airlines and hotels that raises prices when demand is high and cuts prices when there are few customers. Ian McHenry, the President of Beyond Pricing, calls it “the ‘Uber-fication’ of accommodation, whereby the number of places to stay is fluid and can change based on supply or demand.” According to Henry, “hosts who sign up with his company see a revenue increase on average of 26 per cent — and up to 40 per cent. They were previously excited because they were booked every night for the next 90 days. What we show them is they could charge more.”

This price discrimination strategy uses the basic principle of raising prices when demand is inelastic and cutting prices when demand is elastic (Microeconomics for Life, Chs 5, 9).

 

But is there any benefit to consumers? Like Uber’s surge pricing, the higher prices during peak demand times elicits an increase in the supply of housing, so it may be easier to find accommodation.