Manufacturer's Entry in the Product-Sharing Market
52 Pages Posted: 31 Aug 2018
Date Written: August 20, 2018
Mobile communications technologies and online platforms have enabled large-scale consumer-to-consumer (C2C) sharing of their under-utilized products. A product owner’s self-use values can differ over time, and in a period of low self-use value, the consumer may rent out her product in a product-sharing market. In response to consumer-to-consumer product sharing, many manufacturers (e.g., General Motors, BMW) have entered the product-sharing market to provide their own rental services in addition to outright sales to consumers. This paper develops an analytical framework to study a manufacturer’s optimal entry strategy in the product-sharing market and the economic implications of its entry. Our analysis shows that when C2C sharing has a low transaction cost and the manufacturer’s marginal cost of production is not very high, the manufacturer will find it not optimal to offer its own rental services to consumers. In contrast, when the transaction cost for C2C sharing is high or the manufacturer’s marginal cost of production is high, the manufacturer should offer enough units of the products for rental to squeeze out C2C sharing (in expectation). When the transaction cost for C2C sharing and the manufacturer’s marginal cost are both in the middle ranges, the manufacturer’s rental services and the C2C sharing will coexist, in which case the manufacturer’s entry in the product-sharing market may reduce the total number of units of the product in the whole market but increase the consumer surplus and the social welfare. Furthermore, we find that, to maximize the total profit from both the retail market and the sharing market, it may be more efficient for the manufacturer to adjust its quantity offered for rental rather than its retail price in the retail market, i.e., it may be best for the manufacturer to keep the same optimal retail price that it would choose in the absence of the sharing market, but use how much direct rental services to offer to respond to the C2C product sharing.
Keywords: collaborative consumption, sharing economy, product sharing, rental, peer-to-peer, analytical model
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