Clearing the Fog: Price Transparency, Market Churn, and Consumer Welfare in Short-Term Rentals
Abstract
We study California’s short-term lodging price transparency law (AB 537), which from July 1, 2024 required Airbnb and other providers to advertise fee-inclusive prices. Using Coarsened Exact Matching to compare Airbnb listings in San Diego and San Francisco with those in Seattle and Chicago, we find that all-in pricing made guests more price-sensitive relative to control cities; yet, contrary to the standard prediction that transparency lowers prices, average daily rates rose by 4.8 percent. We also observe significant market churn: relative to control cities, treated cities saw more exits and entries, listings reliant on cleaning-fee revenue disproportionately exited, higher-quality listings were more likely to stay, and entrants offered lower fees and lower quality than incumbents. A discrete-choice welfare analysis shows that the law removed a sizable “welfare illusion” created by obscured fees and, largely through market churn, raised realized consumer surplus. The net gains, after accounting for price increases, were positive on average but unevenly distributed across treated ZIP codes.
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