The Strategic and Economic Implications of Consumer-to-Consumer Product Sharing

Abstract

In recent years, mobile communications technologies and online sharing platforms have made collaborative consumption among consumers a major trend in the economy. Consumers buy many products but end up not fully utilizing them. A product owners self-use values can differ over time, and in a period of low self-use value, the owner may rent out her product in a product-sharing market. This paper develops an analytical framework to examine the strategic and economic impact of product sharing among consumers. Our analysis shows that transaction costs in the sharing market have a non-monotonic effect on the firm’s profits, consumer surplus, and social welfare. We find that when the firm strategically chooses its retail price, consumers sharing of products with high marginal costs is win-win for the firm and the consumers whereas their sharing of products with low marginal costs can be lose-lose. Further, in the presence of the sharing market, the firm will find it optimal to strategically increase its quality, leading to higher profits but lower consumer surplus. In addition, within a distribution channel framework, the existence of the sharing market is more likely to increase the downstream retailers profit than the upstream manufacturers profit, i.e., product sharing can sometimes benefit the downstream retailer at the expense of the upstream manufacturer.