Online booking and information: competition and welfare consequences of review aggregators

Amedeo Piolatto

No 2015/11, Working Papers from Institut d'Economia de Barcelona (IEB)

Abstract: Online review aggregators (e.g., booking.com or ClubKviar) provide detailed information about experience goods, such as restaurants and hotels. This study fosters the understanding of how such aggregators modify competition, profits and welfare. Using a spokes model of horizontal competition, I show that review aggregators enhance total welfare mainly by making valuable information available to consumers. The effect on welfare goes through different channels: 1) realised transactions are more valuable for the match between producers and consumers is more accurate; 2) the costumer base enlarges, for more agents find a suitable product; 3) the equilibrium price weakly decreases for competition amongst firms is more intense. However, firms face a prisoner dilemma: firms best response to the status quo is to appear on the aggregator's web so as to enlarge their market share, however, this leads to lower profits than if they all agreed not to use the aggregator.

Keywords: Horizontal competition; spokes model; welfare; review aggregators; online booking; ClubKviar; experience goods; mismatch costs (search for similar items in EconPapers)
JEL-codes: D43 D61 D83 L11 L13 L15 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2015
New Economics Papers: this item is included in nep-com, nep-ind and nep-mkt
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http://ieb.ub.edu/wp-content/uploads/2018/04/2015-IEB-WorkingPaper-11.pdf (application/pdf)

Related works:
Working Paper: `Information Doesn't Want to Be Free': Informational Shocks with Anonymous Online Platforms (2020)
Working Paper: 'Information doesn't want to be free': informational shocks with anonymous online platforms (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:ieb:wpaper:doc2015-11

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