Is it wise for manufacturers to implement preventive maintenance in the sharing business model?

Abstract

In the sharing business model, manufacturers typically increase customer usage through product design but contend with escalating failure costs stemming from heightened customer usage and moral hazard concerns. The preventive maintenance (PM) typically serves as a means for manufacturers to tackle the growing failure cost problem. However, manufacturers face the challenge of how to make PM strategies in intricate operational environments. We formulate a theoretical model to investigate when a manufacturer should implement PM, taking into account customer usage and product design. Our results suggest that when the fixed cost of PM is low and the customer moral hazard is not sufficiently high, or when both the fixed cost of PM and the customer moral hazard are at moderate levels, it is wise for the manufacturer to implement PM. We also find that the PM can lead to higher consumer surplus by increasing customer utility, achieving a win-win situation. In addition, our findings reveal a positive correlation between the PM effort and product quality, with higher PM effort leading to higher product quality and thus increasing customer usage. In extension models, we further explore the issues of maximising social welfare, non-zero maintenance time and endogenous maintenance frequency