How Platform Recommendation Strategies Shape Merchant Revenue and Consumer Welfare--Evidence from Airbnb

This study employs a theoretical framework and regression analysis to examine the effects of Airbnb’s recommendation strategies on merchant revenue and consumer welfare. The results show that both Neutrality-based recommendations (e.g., “Guest Favorite”) and Priority-based recommendations (e.g., “Superhost”) significantly increase merchant revenue and enhance consumer welfare. However, when these recommendation strategies are applied to high-capacity listings, their effects on both merchant revenue and consumer welfare become negative. Moreover, higher host response rates weaken the positive impacts of both Neutrality- and Priority-based recommendations on merchant revenue and consumer utility. Heterogeneity analyses show that Neutrality-based recommendations are more effective in increasing merchant revenue in Europe and North America, while Priority-based recommendations better enhance consumer utility in Asia and Europe; in North America, Neutrality-based recommendations also exert a stronger effect on consumer utility. Further results indicate that Neutrality-based recommendations more strongly promote merchant revenue for private rooms and entire homes, whereas for shared accommodations, recommendations tend to reduce merchant revenue but Priority-based recommendations generate greater gains in consumer utility.