Effects of Consumer-to-Consumer Product Sharing on Distribution Channel

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 owner’s 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 study how consumer-to-consumer product sharing affects the distribution channel, where the manufacturer has to build its production capacity beforehand and the retailer sells the product to forward-looking consumers. Our analysis reveals that there exists a threshold for the capacity cost coefficient, above which product sharing will increase the manufacturer’s optimal capacity and below which it will reduce the manufacturer’s optimal capacity. We find that the sharing market tends to increase the retailer’s share of the gross profit margin in the channel. Furthermore, the existence of the sharing market tends to benefit the firms when capacity is relatively costly to build, but it is more likely to increase the retailer’s profit than the manufacturer’s profit, i.e., product sharing can sometimes benefit the downstream retailer at the expense of the upstream manufacturer.