When prices increase, consumption decreases — a fundamental economic principle. Short-term rentals follow it; they aren’t anomalies like Giffen or Veblen goods. As nightly rates rise, fewer people book, along a downward-sloping demand curve.
Price elasticity of demand
Business owners need a quantifiable answer: how much does a price increase actually reduce demand? That measure is price elasticity of demand — it quantifies how price changes affect quantity demanded, essentially the slope of the demand curve, and it’s central to optimization-based pricing.
Elastic vs inelastic
Inelastic demand describes goods where higher prices barely reduce purchases — cigarettes, and gasoline broadly. Elastic demand is the opposite: a small price change triggers a big drop. A single Shell station raising prices loses customers to competitors, even though gasoline overall is inelastic.
STR demand: both
Pricing managers need to know their demand type, or they risk over-discounting and losing revenue, or overpricing and sitting vacant. Quibble’s work converting economic theory into pricing science found STR demand exhibits both characteristics — sliced finely, it resolves into seven unique market segments with different elasticities.
After we further sliced the data, we ended up with seven unique market segments that all have different price elasticities.
Luxury properties are inelastic — a $10 increase on a $1,000 rate barely moves bookings. Budget properties are elastic — a $10 increase on a $70 rate matters a lot. During onboarding, each property receives a customized competitor set based on the attributes that determine its segment and elasticity, calculated automatically behind the scenes.