Manufacturer's Entry in the Product-Sharing Market

Problem definition: Mobile communications technologies and online platforms have enabled large-scale consumer-to-consumer (C2C) sharing of their underutilized products. This paper studies a manufacturer's optimal entry strategy in the product-sharing market and the economic implications of its entry. Academic/practical relevance: Sharing of products or services among consumers has experienced dramatic growth in recent years. The impact of C2C sharing on traditional firms can be very significant. In response to C2C product sharing, many manufacturers (e.g., General Motors and BMW) have entered the product-sharing market to provide business-to-consumer (B2C) rental services in addition to outright sales to consumers. Methodology: We employ a game-theoretic analytical model for our analysis. Results: Our analysis shows that when C2C sharing has a low transaction cost and the manufacturer's marginal cost of production is not very high, the manufacturer will find it not optimal to offer its own rental services to consumers. In contrast, when the C2C sharing transaction cost is high or the manufacturer's marginal cost of production is high, the manufacturer should offer enough units of the products for rental to squeeze out C2C sharing (in expectation). When the C2C-sharing transaction cost and the manufacturer's marginal cost are both in the middle ranges, the manufacturer's rental services and the C2C sharing will coexist, in which case the manufacturer's entry in the sharing market may reduce the total number of units of the product in the whole market, but increase the consumer surplus and the social welfare. This reduced number of products due to the manufacturer's B2C rental service also suggests less environmental impact from production. Managerial implications: The production cost and the C2C sharing transaction cost play critical roles in determining the manufacturer's optimal quantity to use for its B2C rental services and the equilibrium outcome. In some situations, the manufacturer's entry in the sharing market provides not only economic benefits to the firm and consumers, but also environmental benefits to the society as a whole.

Automated summary

This paper studies a manufacturer's optimal entry strategy in the product-sharing market and the economic implications of its entry. The impact of consumer-to-consumer sharing on traditional firms can be significant. The manufacturer's entry may reduce the total number of units of the product in the market, but increase consumer surplus and social welfare, with potential environmental benefits as well.