Impacts of sharing business on production, sales, and rental markets

Abstract

The rapid growth of the sharing economy has received much attention by recent studies. Most of them focus on the impacts on the rental markets, and sharing is seen as a perfect substitute to rental. Since evidence shows that the sharing business has also greatly affected sales markets and manufacturers, this paper attempts to bridge the gap by examining the overall effects of sharing business on rentals, sales, production, and labor employment in a differentiated product model. Renting from firms and from private owners are different in the quality instability of sharing business. By assuming heterogeneous consumers with different risk attitudes, we characterize the equilibrium for this imperfect competition market. Our results show that sharing business not only decreases the rental prices, it also decreases the retail prices. The demand for new products will decrease, and the product supplying price, production and labor employment will also decrease. If the quality of sharing business is improved, the competition between rental and sharing products becomes more severe. Both selling and rental prices will decrease, but the price of sharing business will increase. Our model suggests that for existing rental firms, increasing product heterogeneity can reduce the impacts from sharing business. For the producers, our analysis suggests to increase the replacement rate through providing innovations, to provide portable “parts” to the used products, to provide post-sale services or sustainability production, and to participate in the sharing business.