Collaborative Consumption: Strategic and Economic Implications of Product Sharing

Recent technological advances in online and mobile communications have enabled collaborative consumption or product sharing among consumers on a massive scale. Collaborative consumption has emerged as a major trend as the global economic recession and social concerns about consumption sustainability lead consumers and society as a whole to explore more efficient use of resources and products. We develop an analytical framework to examine the strategic and economic impact of product sharing among consumers. A consumer who purchased a firm's product can derive different usage values across different usage periods. In a period with low self-use value, the consumer may generate some income by renting out her purchased product through a third-party sharing platform as long as the rental fee net of transaction costs exceeds her own self-use value. Our analysis shows that transaction costs in the sharing market have a nonmonotonic 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 a win-win situation for the firm and the consumers, whereas their sharing of products with low marginal costs can be a lose-lose situation. Furthermore, 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. This paper was accepted by J. Miguel Villas-Boas, marketing.