Strategies analysis of luxury fashion rental platform in sharing economy

Abstract

As the sharing economy has grown rapidly in recent years, luxury fashion rental has become a prominent business trend. An increasing number of designer brands are finding ways to cooperate with rental platforms rather than compete with them. We develop a stylized model to study the impact of business-to-consumer product sharing on luxury fashion brands. Specifically, we consider a setting where a designer brand firm provides a luxury fashion product to a rental platform, which can either purchase the product from the firm then rent to consumers, or allow the designer brand firm to use its platform to reach the consumers directly with a commission fee. Our analysis reveals that the presence of a rental platform leads to two simultaneous effects: a market expansion effect and a cannibalization effect. In the base model, we show that the market expansion effect dominates the cannibalization effect. Therefore, the designer brand firm can benefit from the appearance of a rental platform. Further, our analysis reveals that the optimal choice between the wholesale and agency contract of the firm and the platform depends critically on two parameters: the revenue-sharing proportion and salvage value. We illustrate that when the revenue-sharing proportion is relatively large and salvage value is relatively small, both the firm and the platform benefit more under the agency contract. Moreover, we illustrate the robustness of our main insights to consider the presence of different consumer segments, consumers’ conspicuous behavior, competition between rental platforms, and two-period rental setting.