New York passed a law last month that prohibits New Yorkers' advertisement of short term home rentals, directed at the growth in the Airbnb business that has been taking over the lodging industry across the country, including New York. The new law signed by the NY governor Andrew Cuomo, which will impose up to $7,500 fines on rental listings that are for shorter than one month, was presented from one angle as "necessary to protect affordable housing" in New York.
However, after reading George Stigler, we can look further and see that this law is an effort by the American Hotel and Lodging Association (AHLA) to control entry by substitutes. Here, the hotel industry is looking to maintain the rents that they earn from providing essentially the only option for short-term renters taking a brief vacation to New York, particularly during the holiday season. By encouraging regulation over options that would take away customers from New York hotels through lobbying efforts, the AHLA is reducing competition for hotels and therefore using regulation to keep earning rents in the lodging industry. With fewer options, consumers are far more likely to purchase a hotel room for their vacation and because there are very limited alternatives, they'll be willing to pay a higher price.
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