Speculation is a funny thing. On January 16th of this year, the Grateful Dead announced their final concert would take place over 4th of July weekend at Chicago’s Soldier Field. Not only did tickets sell out almost immediately, hotels sold out faster than anytime in history.
After the announcement, the hotels that didn’t sell out went for 3 times as much as last year. Orbitz declared it was “hands down the biggest spikes [they’ve] ever seen.” The Hilton Chicago sold out in less than a day. Tickets to the show were going for $15,000 on the secondary market.
Now, a week before the Grateful Dead “fare thee well”, things are much different. The same Hilton that sold out in hours has plenty of rooms available for only 70% above normal ($459/night). There are now thousands of tickets available for as little as $185.
So what happened? In short – speculation.
Speculators snatched up hotel rooms as well as tickets in hope of turning a handsome profit. And some of these speculators succeeded. As soon as all the rooms and tickets were gone, people who missed out started to get desperate. The smart speculators slowly unleashed their inventory of rooms and tickets to these people, often at highly inflated rates. Scarcity and lack of supply collided with huge demand to equal astronomic prices.
But some of those speculators held on too long. With the majority of concert-goers having already booked their hotel and with Airbnb absorbing a lot of the excess demand for accommodation, those speculators are cancelling reservations and hotel availability is opening up. Ticket scalpers who held on too long are dumping their tickets on StubHub.
Airbnb is especially susceptible to these wild swings in supply and demand, largely because it’s so easy to flood the market with supply. As we’ve written before, whenever a frenzy gets stirred up about the high prices people can fetch from renting out their Airbnb, more and more people start listing their spare bedroom or decide to go out of town and rent out their entire home. As this happens, though, prices start going back down rapidly as supply starts to outstrip demand. As quickly as the frenzy caused prices to rise because of real or perceived decreases in supply, the same frenzy causes supply to flood and prices to drop. The moment of profit-taking is gone almost as quickly as it came.
At Beyond Pricing, our dynamic pricing model quickly detects surges in demand as well as surges in supply, and changes hosts’ prices, often faster than hotels can. Our users quickly had their rates increased before we even knew about the Grateful Dead because of the signals in the market that our algorithm saw. Some users had their rates climb to 2.5x of normal, netting them $500/night for their place that normally goes for $200/night.
Quickly, however, as more Airbnbs flooded the market, price premiums for Airbnbs came down, settling at around 70% above normal this week. Interestingly, this is very close to the premiums hotels are seeing. The number of Airbnbs in Chicago went from 2,500 before the concert was announced to over 4,300 the week before the event.
With all of the new supply of Airbnbs from people solely listing their place for the Grateful Dead concert, like here and here, in the end, occupancy for Airbnbs was not that different than other big events this summer.
Large events like the final Grateful Dead concert demonstrate how crazy the market dynamics can be and how Airbnb hosts can benefit from sophisticated dynamic pricing like Beyond Pricing.
If you have an Airbnb in Chicago (or in any of the 40 largest cities in the world where we are live), you can preview your recommened prices for free on Beyond Pricing: