Business Models in the Sharing Economy: Manufacturing Durable Goods in the Presence of Peer-to-Peer Rental Markets
42 Pages Posted: 3 Jan 2017 Last revised: 11 Apr 2019
Date Written: March 1, 2019
Business models that focus on providing access to assets rather than on transferring ownership of goods have become an important industry trend, representing a challenge for incumbent firms. This paper analyzes the interaction of a peer-to-peer (P2P) rental market and an original equipment manufacturer (OEM) under alternative market structures. The analysis highlights the important role of consumer heterogeneity in usage rates in determining which business model would be preferred by the OEM. The introduction of a P2P rental market creates an equalizing effect (willingness to pay by high- and low-usage consumers becomes more similar), which leads to purchases from low-usage consumers. The firm can be better off in the P2P setting when the heterogeneity in usage rates is intermediate. Surprisingly, consumers might be worse off with P2P rentals, because of the firm's ability to implicitly segment consumers and the equalizing effect resulting from the firm extracting a larger fraction of surplus. P2P rentals do reduce disparities in welfare between consumers though. This paper investigates alternative business models for the OEM, and shows that the firm is never better off with P2P when usage rates in the market are too low. If usage rates are sufficiently large, the firm is better off with P2P rentals when the equalizing effect dominates, which requires a sufficient level of heterogeneity in usage rates. Furthermore, if a P2P market is unavoidable, the OEM would not necessarily be better off by introducing its own rentals to compete against P2P. Thus, contrary to what could be expected, the OEM has an incentive to facilitate P2P rentals in a large variety of cases.
Keywords: Business Models, Sharing Economy, Peer-To-Peer Marketplaces, Rentals, Manufacturing
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