Blessing or curse? Sharing economy and its impact on the community of customers and suppliers

Abstract

AbstractSharing economy offers an alternative to customers with on‐demand services and opens up a new way for owners of underutilized resources to generate revenue. However, there is little evidence on whether sharing economy benefits the community of customers and suppliers or not. Our work is motivated by the ongoing stories of conflicts related to the ride sharing platforms (e.g., Uber, Lyft) and the information we collected from industry practitioners. We propose an economic model that describes how a price manipulating ride sharing platform crowdsources and matches supply to demand. Furthermore, our model captures how sharing economy's manipulative power impacts the community of customers and suppliers. Sharing economy platforms allow customers to make purchase decisions after evaluating the search cost, which depends on other customers' purchase decisions and leads to endogenous demand for sharing economy services. A comprehensive theoretical analysis of such models can be extremely challenging due to the endogenous demand. However, we provide such analysis by assuming that the customers evaluate the search cost with the estimated or “exogenous” demand instead of the realized or “endogenous” demand. Moreover, we support our theoretical findings in more realistic settings by performing various numerical analyses. Our results suggest that the financial objective of sharing economy may conflict with the welfare of the affected community, which can be mitigated by government regulations that impose upper bounds on price surges. Our work helps researchers, practitioners, and public policy makers more comprehensively understand the challenges that sharing economy brings and suggests possible regulatory intervention.