We study a home rental market where hosts compete in prices and decide which guests to accept. Such screening results in inefficiently many rejections and can reduce welfare. In a unique symmetric equilibrium, hosts randomize over prices so that it may be unprofitable for them to accept some efficient trades. Moreover, every equilibrium is inefficient when there are few hosts. We further show that screening increases welfare when there are enough hosts or when the potential loss of surplus from inefficient trades is high. We discuss the implications of our findings to online platforms such as Airbnb and HomeAway.
scite is a Brooklyn-based organization that helps researchers better discover and understand research articles through Smart Citations–citations that display the context of the citation and describe whether the article provides supporting or contrasting evidence. scite is used by students and researchers from around the world and is funded in part by the National Science Foundation and the National Institute on Drug Abuse of the National Institutes of Health.