Business Models in the Sharing Economy: Manufacturing Durable Goods in the Presence of Peer-to-Peer Rental Markets
41 Pages Posted: 3 Jan 2017 Last revised: 3 May 2018
Date Written: April 1, 2018
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, but also an opportunity to adjust their own business models. This paper analyzes the interaction of a peer-to-peer (P2P) rental market and an original equipment manufacturer (OEM). Our analysis highlights the important role of consumer heterogeneity in usage rates. The introduction of a P2P creates an equalizing effect (willingness-to-pay of high and low-usage consumers becomes more similar), which leads to purchases from low-usage consumers. It also allows the firm to implicitly segment the market, while providing just one good. As a consequence, the firm can be better off in the presence of P2P when the level and heterogeneity in usage rates are above a threshold. Surprisingly, consumers might be worse off due with P2P rentals, because the firm's ability to implicit segment consumers and extract a larger fraction of their surplus. In addition, P2P rentals benefit low-usage consumers proportionally more than high-usage consumers. We investigate alternative market structures for the OEM, and show 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. Further, 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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