Cleanin' It Up: Unshrouding Hidden Fees on a Peer-to-Peer Platform

Kevin D. Tran, Leonardo Madio, Michelangelo Rossi and Mark Tremblay

Bristol Economics Discussion Papers from School of Economics, University of Bristol, UK

Abstract: Price-transparency mandates are usually motivated by a demand-side logic: When consumers underweight hidden fees, making total prices salient should reduce fee shrouding. We show that, when pricing authority is delegated to heterogeneous sellers, transparency also operates as a supply-side information shock: Price displays inform sellers about their competitors, not only buyers about products. Under fee shrouding, sellers who use hidden add-ons display lower base prices, so an inattentive seller who benchmarks against displayed prices underestimates the true cost of competing listings. Revealing fee-inclusive prices corrects this misperception and can lead such sellers to raise posted prices. Using Airbnb's 2019 introduction of fee-inclusive price displays for EU users, we test this mechanism. Zero-fee listings whose relative affordability improves most when competitors' fees become visible raise base prices by about 17 GBP per night, or 17 percent. The effect is absent in New York City, where the display did not change, concentrated among non-Superhosts, and unaccompanied by any differential increase in bookings for these listings. By contrast, fee-charging hosts more exposed to EU travelers modestly reduce cleaning fees, by 0.50-0.55 GBP, in response to a salience shock affecting only guests searching from within the EU. Therefore, fee transparency in decentralized markets can reduce fees of some products while increasing prices of others.

Date: 2025-04-02
New Economics Papers: this item is included in nep-eur, nep-pay and nep-reg
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