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.Aconsumer 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.