Peer-to-Peer Product Sharing: Implications for Ownership, Usage, and Social Welfare in the Sharing Economy

We are witnessing, across a wide range of domains, a shift away from the exclusive ownership and consumption of resources to one of shared use and consumption. This shift is taking advantage of innovative new ways of peer-to-peer sharing that are voluntary and enabled by Internet-based exchange markets and mediation platforms. Value is derived from the fact that many resources are acquired to satisfy infrequent demand but are otherwise poorly utilized (for example, the average car in the United States is used less than 5% of the time). Several successful businesses in the United States and elsewhere - such as Turo  for cars, Spinlister for bikes, 3D Hubs for 3D printers, LiquidSpace for office space, MachineryLink for farm equipment, and JustPark for parking—provide a proof of concept and evidence for the viability of peer-to-peer product sharing or collaborative consumption. These businesses and others allow owners to rent poorly utilized assets on a short-term basis and non-owners to access these assets through renting on an as-needed basis. Collectively, these businesses and other manifestations of the collaborative consumption of products and services are giving rise to what is becoming known as the sharing economy.  

The peer-to-peer sharing of products is not a new concept. However, recent technological advances in several areas have made it more feasible by lowering the associated search and transaction costs. These advances include the development of online marketplaces, mobile devices and platforms, electronic payments, and two-way reputation systems whereby users rate providers and providers rate users. Other drivers behind the rise of peer-to-peer sharing are societal and include increased population density in urban areas around the world, increased concern about the environment (collaborative consumption is viewed as a more sustainable alternative to traditional modes of consumption), and increased desire for community and altruism among the young and educated.

Peer-to-peer product sharing has the potential of in-creasing access while reducing investments in re-sources and infrastructure. In turn, this could have the twin benefit of improving consumer welfare (individuals who may not otherwise afford a product now have an opportunity to use it) while reducing societal costs (externalities, such as pollution that may be associated with the production, distribution, use, and disposal of the product). It also has the potential of providing a source of net income for owners by monetizing poorly utilized assets, which are in some cases also expensive and rapidly depreciating. Take cars, for example. The availability of a sharing option could lead some to forego car ownership in favor of on-demand access. In turn, this could result in a corresponding reduction in congestion and emissions, and, eventually, in reduced investments in roads and parking infrastructure. However, increased sharing may have other consequences, some of which may be undesirable. For example, greater access to cars could increase car usage and, therefore, lead to more congestion and pollution if it is not accompanied by a sufficient reduction in the numbers of cars. It could also lead to speculative investments in cars and price inflation, or affect the availability and pricing of other modes of public transport, such as taxis, buses, and trains.

Peer-to-peer product sharing raises several important questions. How does peer-to-peer sharing affect ownership and usage of resources? Is it necessarily the case that sharing leads to lower ownership, lower usage, or both (and therefore to improved environmental impact)? If not, what conditions would favor lower ownership, lower usage, or both? Who benefits the most from peer-to-peer sharing among owners and renters? To what extent would a profit-maximizing platform, through its choice of rental prices, improve social welfare?

These questions are addressed in “Peer-to-Peer Product Sharing: Implications for Ownership, Usage, and Social Welfare in the Sharing Economy” (Saif Benjaafar, Guangwen Kong, Xiang Li and Costas Courcoubetis, Management Science, 2019, Volume 65, No. 2). The authors describe an equilibrium model of peer-to-peer product sharing. They characterize equilibrium outcomes, including ownership and usage levels, consumer surplus, and social welfare. They compared each outcome in systems with and without product sharing and examine the impact of various problem parameters including rental price, platform’s commission rate, cost of ownership, owner’s extra wear and tear cost, and renter’s inconvenience cost. Their findings indicate that peer-to-peer product sharing can result in either higher or lower ownership and usage levels, with higher ownership and usage levels more likely when the cost of ownership is high. They show that consumers always benefit from peer-to-peer product sharing, with individuals who, in the absence of sharing, are indifferent between owning and not owning benefitting the most. They show that the platform’s profit is not monotonic in the cost of ownership (first increasing and then decreasing), implying that a platform is least profitable when the cost of ownership is either very high or very low (also suggesting that a platform may have an incentive to affect the cost of ownership by, for example, imposing membership fees or providing subsidies).

Read the full article at https://doi.org/10.1287/mnsc.2017.2970.

 

Reference

Benjaafar, S, Kong G, Li X, and Courcoubetis C (2019). Peer-to-Peer Product Sharing: Implications for Ownership, Usage, and Social Welfare in the Sharing Economy. Management Science 65(2): 459-954.

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