Abstract

We study strategic pricing incentives when prices affect ratings. Two channels determine the price-rating interaction: higher prices reduce the value for money, worsening ratings, but increase the taste-based valuation of travelers, improving ratings. The price further determines the frequency of rating updates through its effect on demand. Our empirical results in the context of Airbnb show a dominant value-for-money effect and that hosts benefit from low entry prices: offering a median entry discount of seven percent improves medium-run monthly revenues by three percent. We also provide some evidence in favor of strategic host behavior. More professional hosts are more likely to use entry discounts, and hosts lower their prices to surpass rating thresholds.