Airbnb algorithm linked to racial disparities in pricing

“Discrimination analysis shouldn’t be left to tech companies self-regulating,” said non-profit civil rights advocacy group Color of Change.

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Airbnb’s “Smart Pricing” algorithm has fueled complaints from Black hosts and guests about racial discrimination when using the online lodging tool. 

As noted on the official Airbnb website, Smart Pricing lets users set prices to automatically go up or down based on changes in demand for listings. A new study from researchers at Carnegie Mellon University found that the feature, which launched in 2015 to assist users in securing more bookings, has made racial disparities worse. 

Airbnb theGRIO.com
(Credit: Getty Images)

For the study, Param Vir Singh, the paper’s author and a professor at Carnegie Mellon, randomly selected 9,396 Airbnb properties in seven major U.S. cities and analyzed their earnings. The study, which was conducted from July 2015 to August 2017, found that the algorithm decreased racial revenue disparities caused by lower demand for Black-owned homes by 71 percent, per The Financial Times.

Smart Pricing is a feature that automatically adjusts the price of a listing to go up or down, based on features like the type and location of a listing, seasonality, demand, and other factors. Hosts select when to turn the tool on or off. Hosts can set a minimum nightly rate, and the platform guarantees the price will never fall below that threshold.  While the Carnegie Mellon study authors indicate they collected data on a monthly basis, Airbnb hosts can turn Smart Pricing on or off for shorter periods of time.

Before the introduction of the Smart Pricing algorithm, White hosts on Airbnb reportedly made on average $12.16 more than Black hosts. Researchers said when hosts began using the Smart Pricing algorithm, the revenue disparity was reduced to $3.46. However, with Black hosts hesitant to use the tool, the revenue gap increased to $14.30, according to the report.

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“The most surprising finding was that even though the algorithm was benefiting both Black and white [hosts] more, it led to greater social inequality in the whole population, because of significantly [lower] adoption rates amongst Black hosts,” said Singh. He explained, “So even a well-meaning algorithm can lead to greater social inequality…there are unintended consequences of algorithms.” 

Singh and his team of researchers polled Airbnb hosts for the study titled, “Can an AI Algorithm Mitigate Racial Economic Inequality? An Analysis in the Context of Airbnb.” The study was completed in January 2021. Singh concluded that “even a well-meaning algorithm can lead to greater social inequality…there are unintended consequences of algorithms.” 

The study has prompted renewed calls for internal Airbnb data to be accessible to independent regulators and academics to analyze racial discrepancies on the platform. 

“Discrimination analysis shouldn’t be left to tech companies self-regulating,” said non-profit civil rights advocacy group Color of Change. “In order to truly root out racial bias within tech companies’ platforms and products, regulators…must have access to company data that analyses the experiences of Black users.”

As theGRIO previously reported, Airbnb changed its policies in 2018 so hosts using its platform can choose not to require photos, and said photos would only be shown to hosts after they accept a booking. 

The move came after Airbnb settled a lawsuit brought by several Oregon women who said the site allowed vacation rental owners to discriminate against customers based on race.

The Oregonian/OregonLive reported that African American plaintiffs Pat Harrington, Carlotta Franklin and Ebony Price alleged that by requiring and disclosing users’ full names and photographs, Airbnb allowed its hosts to discriminate against black users in violation of Oregon’s public accommodation laws.

In separate statements, Airbnb and the plaintiffs’ attorneys said the website had renewed its commitment to the 2018 change regarding photos and would “review and update the way profile names are displayed to hosts as part of the booking process.”

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“Airbnb could try to get [Black hosts] to use the algorithm and cover any losses for a few weeks or months, to give them confidence that the algorithm is actually valuable to them. It can increase adoption and benefit both Airbnb and these hosts,” Singh said.

Five years ago, a comprehensive review of the app by Laura Murphy, the former head of the American Civil Liberties Union’s Washington D.C. Legislative Office, led to a number of important changes to help fight discrimination, including:

  •  Creating and enforcing a strict Non-Discrimination Policy; 
  •  Introducing the Community Commitment, which all members of our community must affirmatively agree to “to treat everyone in the Airbnb community – regardless of their race, religion, national origin, ethnicity, disability, sex, gender identity, sexual orientation, or age – with respect, and without judgment or bias.” This Commitment applies to everyone who uses Airbnb around the world and to date, 1.4 million people have been removed for not agreeing to the Commitment.
  • Establishing a dedicated Anti-Discrimination Product team;
  • Removing guest profile photos from the booking process – hosts do not see the photos until after they accept a reservation; 
  • Increasing the number of listings available for instant booking

In June 2020, Airbnb launched Project Lighthouse, an initiative in partnership with Color Of Change, and with guidance from organizations like Upturn. Through Project Lighthouse, the company is beginning to research when and where racial discrimination happens on the platform and the effectiveness of policies that fight it.

In response to the SmartPricing algorithm reportedly causing racial pricing disparities, an Airbnb spokesperson said in a statement: “We developed our Smart Pricing tool to help ensure every Airbnb host has the tools needed to capture the economic benefits of home sharing and to address the very disparities this study examines. The number of active listings in the United States using Smart Pricing has increased more than 50 percent over the last three years as we have worked to educate hosts on the benefits of this tool. We plan to leverage Project Lighthouse to examine the usage of our Smart Pricing tool by perceived racial groups and we will continue to take steps to help make sure our platform remains a place that creates economic opportunity for our hosts.” 

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