• Internal Code :
  • Subject Code : MIHM302
  • University :
  • Subject Name : Hospitality

Hospitality Business in the Global Context

Table of Contents

Introduction

Impact of Sharing Economy on Hospital Industry

Conclusion

Introduction to Sharing Economy

Sharing Economy means a collaborative approach to acquiring goods and services. It has become a significant part of the economy today. In a sharing economy, technology acts as a bridge between the producers and consumers. It has made services and products more accessible and at competitive prices. From a socio-economical perspective, sharing economy challenges the existing business models and traditional methods. It is a decentralised peer-to-peer market system which caters to the needs of all kinds of demographics. Technology acts as an intermediary channel and brings together the ones who have to the ones who want. From services like Uber, which provides transportation to We Work which provides shared working spaces, shared economy not only presents with a vast array of products but also looks into waste minimization by using the resources one has at hand.

The hospitality sector has always been a significant force in the global economy. The hotel industry generates various employment opportunities and the revenues generated add to the GDP of the countries. The entry of sharing economy has brought about a change in dynamics in the hospitality scene. Taking the current trends into account, it can be claimed that, “thesharing economy has affected the hotel industry on a global scale”.

Impact of Sharing Economy on Hospitality Industry: An Analysis

From short term rentals of cars to accommodations, sharing economy involves a host of services. There is also a feedback system in place – usually involves leaving a rating or comments on the various services experienced – which fosters a sense of trust and goodwill, thereby encouraging the use of the service or commodity again. 

Specifically looking into the hospitality industry, one name stands out and that is Airbnb. Airbnb has gained a lot of popularity in the last few years. They derive revenue from both the host as well as the guest and has shown rapid growth. It offers good services – from shared rooms to entire houses for rent – at affordable rates. The one question everyone has been looking into is whether Airbnb has what it takes to be a permanent substitute or alternative to the hotel industry.

Various studies have tried to highlight the effect that Airbnb has on the hospitality industry. In Texas, for every 1% increase in Airbnb listing, there has been a decrease in the quarterly hotel revenues (Zervas et al., 2016). Due to its pricing strategy and the fact that it provides imperfect substitutes for existing products, it has had a negative impact on revenues generated by hotels. Sharing economy has generated a demand that did not previously exist, through the supply of new and unique goods and services. Sharing economy is likely to impact industries where high variability in customers’ demand exists as the newcomers can scale to meet the demand changes dynamically due to ease of supplying products that rely on the underutilised and distributed resources (Blal et al., 2018).

However, it has been observed that it is mostly the lower end hotels which do not cater to the business travellers that are most affected. A distinctive characteristic of the hospital industry is its high consumer segmentation, price discrimination (which means different products and services are priced differently) and highly perishable products (such as rooms), making it hard to keep up with short term fixed supply and variable demand (Randhawa, Kim and Cichy, 2017). Airbnb has a higher penetration in low to medium consumer segments as compared to high consumer segments. They provide an advantage of cost and threaten the revenues of traditional hotels by attracting price-conscious customers to itself (Griswold, 2016). Hence, luxury and premiere hotels are not as negatively impacted as their lower order counterparts.

Sharing economy is said to have the potential to transform social welfare and should be viewed with the perspective of social welfare, i.e. sum of individual utilities over society. For starters they help generate employment. Increased employment in the industries that are associated with the functioning of Airbnb and in employee groups with lower educational levels have been generated (Mao, Tian & Ye, 2018). Various platforms make claims of social benefits, such as the benefit of meeting people, making friends and widening one’s social circle (Fitzmaurice et al., 2016). Moreover, the concept of product sharing has the potential to alleviate many social problems such as wastage of products, idle resources, road congestion and even greenhouse emissions (Wang, Fang & Zhou, 2016). This initiative aligns with the concept of sustainability and economic growth can coexist. Sharing economy is promoting a sustainable lifestyle by shifting the attention to consumption (Kaushal, 2018). It also prevents resources from getting wasted, positively impacting property owners as they do not need their property during the lending period, in addition to enjoying monetary gains by lending the unused property (Frenken & Schor, 2017).

Conclusion on Sharing Economy

Sharing economy has challenged the traditional aspect of the producer and consumer relationship. Technology has been added as a medium to bridge the gap between the ones who have resources and want to provide temporary access to the ones who need these resources. The impact that sharing economy and a change in the jurisdiction have had on the hospitality business has been mixed. The low to middle range hotels have been severely affected by Airbnb as compared to the higher segment hotels. Sharing economy provides a good variety of services and products, for the value of money. Needless to say, the ones preferring high-end hotels are not price-conscious, thereby not affected by the competitive prices of sharing economy and sticking to their old preferences irrespective of the cost.

Coming to the various stakeholders involved, sharing economy benefits the consumer, specifically the price-conscious consumers the most. The rapid growth of sharing economy has brought with it, lower rates of unemployment, due to the generation of new jobs and an increase in household income. It also benefits property owners by providing them with the opportunity to generate extra income by lending out resources that at not being used by them. This way, the problems of resource wastage is also being effectively handled. It is the owners of the traditional low to medium segment hotels that are experiencing maximum impact in the form of loss of revenue.

Thus, sharing economy has been a revolutionary phenomenon that has opened up the perspectives of the consumers, providing them with innovative cost-effective products thus, generating demand for commodities that did not exist before. It can be restated that, “sharing economy has indeed impacted the global hospitality sector in a way that benefits society and ultimately, the economy”.

References for Sharing Economy

Blal, I., Singal, M., & Templin, J. (2018). Airbnb’s effect on hotel sales growth. International Journal of Hospitality Management, 73, 85–92. https://doi.org/10.1016/j.ijhm.2018.02.006

Fitzmaurice, C. J., Ladegaard, I., Attwood-Charles, W., Cansoy, M., Carfagna, L. B., Schor, J. B., & Wengronowitz, R. (2018). Domesticating the market: moral exchange and the sharing economy. Socio-Economic Review, 18(1), 81–102. https://doi.org/10.1093/ser/mwy003

Frenken, K., & Schor, J. (2017). Putting the sharing economy into perspective. Environmental Innovation and Societal Transitions, 23, 3–10. https://doi.org/10.1016/j.eist.2017.01.003

Kaushal, L. A. (2018). The Sharing Economy and Sustainability: a Case Study of India. Valahian Journal of Economic Studies, 9(2), 7–16. https://doi.org/10.2478/vjes-2018-0013

Mao, Y., Tian, X., & Ye, K. (2018). The Real Effects of Sharing Economy: Evidence from Airbnb. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.3111975

Randhawa, P., Kim, M., & Cichy, R. F. (2016). Service Innovations: What the Managers Believe and What the Customers Say. Journal of Hospitality Marketing & Management, 26(2), 186–206. https://doi.org/10.1080/19368623.2016.1208598

Roma, P., Panniello, U., & Lo Nigro, G. (2019). Sharing economy and incumbents’ pricing strategy: The impact of Airbnb on the hospitality industry. International Journal of Production Economics, 214, 17–29. https://doi.org/10.1016/j.ijpe.2019.03.023

Wang, S., Li, Q., Fang, C., & Zhou, C. (2016). The relationship between economic growth, energy consumption, and CO2 emissions: Empirical evidence from China. Science of The Total Environment, 542, 360–371. https://doi.org/10.1016/j.scitotenv.2015.10.027

Zervas, G., Proserpio, D., & Byers, J. W. (2016). The Rise of the Sharing Economy: Estimating the Impact of Airbnb on the Hotel Industry. Journal of Marketing Research, 54(5), 687–705. https://doi.org/10.1509/jmr.15.0204

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