New York Governor Andrew Cuomo signed a law on Friday targeting short term apartment rentals. Anyone caught advertising a short-term rental apartment on a home-sharing site can now be fined up to $7,500. This is a transparent attempt to harm Airbnb's flourishing business, in a similar vein to the laws targeting Uber in many cities across the U.S and the Texas liquor laws Professor Elzinga described. According to the Wall Street Journal's editorial board, "The politicians are responding to hoteliers and unions that claim that mini-Donald Trumps are buying up properties and renting them as 'illegal hotels.'" But per the Board, this doesn't add up. "The real complaint is that Airbnb is unwelcome competition," says the Board, thus "This is a classic restraint of trade."
If the Journal's Editorial Board's suspicions are correct, then this is a clear example of rent-seeking. Hoteliers are spending resources to undercut competition and rig the game, rather than try to get better at it by improving their business. This will create negative social value, but it's totally rational behavior. If it's cheaper for entrenched interests like the Holliday Inn to simply donate to malleable politicians that will gut Holliday's Inn most disruptive competitor, rather than for Holliday Inn to actually innovate to find ways to cut its own costs, then Holliday Inn will prefer the former tactic. This highlights the importance of Tullock's paper. Not only does the new law create a dead weight loss, there are even more costs: all the resources rational firms diverted from productive avenues to instead lobby the New York state legislature for a new law to protect their business from competition.
1 comment:
Matt –
I looked into this matter too and would like to add that, in addition to the hoteliers’ rent-seeking efforts in the New York government, Airbnb spent $10 million on a campaign intended to sway the public’s opinion and defeat the bill’s passage. Even though their expensive effort failed, the rental company has plans to sue the state on grounds of limiting free speech and due process, which will result in even more spending in attempt to recover its monopoly-like power in the city. Airbnb’s expenditures illustrate that rent-seeking is not just limited to those seeking power, but also those hoping to protect it.
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