The Car Sharing Economy: Interaction of Business Model Choice and Product Line Design

44 Pages Posted: 29 Dec 2013 Last revised: 7 Mar 2017

Ioannis Bellos

George Mason University-School of Business

Mark Ferguson

University of South Carolina - Department of Management Science; Georgia Institute of Technology

L. Beril Toktay

Georgia Institute of Technology - Scheller College of Business

Date Written: September 17, 2016

Abstract

Several auto manufacturers have recently introduced car sharing programs. Although the structure of most programs is the same, there is no clear dominant strategy regarding the type of vehicles OEMs should provide through car sharing. In this paper, we consider an OEM who contemplates car sharing and designs its product line by accounting for the trade-off between driving performance and fuel efficiency under CAFE standards. Customers have different valuations of driving performance and decide whether to buy, join car sharing, or rely on their outside option. We find that the OEM increases the fuel efficiency of the vehicles it provides through car sharing. This higher efficiency enables the OEM to charge a higher selling price to the higher end of the market, increasing its profit from selling. This is especially beneficial to higher-end OEMs who face greater cannibalization and can explain why Daimler and BMW have been particularly active in introducing car sharing. Offering car sharing is not always environmentally beneficial. Even when it is, we find that doing so may reduce the OEM's CAFE level. In such cases, incentive multipliers should be granted for each shared car. Finally, if anticipating aggressive CAFE standards, OEMs may introduce car sharing to better absorb the increase in the production cost.

Keywords: car sharing, sustainable transportation, sustainable business models, CAFE standards, fuel efficiency, product line

Suggested Citation

Bellos, Ioannis and Ferguson, Mark and Toktay, L. Beril, The Car Sharing Economy: Interaction of Business Model Choice and Product Line Design (September 17, 2016). Georgia Tech Scheller College of Business Research Paper No. 2016-054. Available at SSRN: https://ssrn.com/abstract=2372406 or http://dx.doi.org/10.2139/ssrn.2372406

Ioannis Bellos (Contact Author)

George Mason University-School of Business ( email )

Enterprise Hall, 4400 University Drive
MS 5F4
Fairfax, VA 22030
United States
703-993-1788 (Phone)

HOME PAGE: http://mason.gmu.edu/~ibellos

Mark Ferguson

University of South Carolina - Department of Management Science ( email )

United States

Georgia Institute of Technology ( email )

Atlanta, GA 30332
United States

Beril Toktay

Georgia Institute of Technology - Scheller College of Business ( email )

800 West Peachtree St., NW
Atlanta, GA 30308
United States

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