The economic viability of the sharing economy business model and its environmental impact

Abstract

The sharing economy refers to a business model where access to products or services is shared among consumers through an online platform. This model has recently received much attention to determine whether it is economically viable and environmentally friendly. The main trade-off is this: a decrease in production volume possibly favoring the environment while reducing the manufacturer’s profits versus an increase in product usage potentially harmful to the environment while enhancing the manufacturer’s profits from increased margins. Furthermore, the sharing economy may prod the manufacturer to either elevate product efficiency so as to justify a higher selling price or to reduce it with the intent of cutting production costs. Given these arguments, we investigate both economic and environmental impacts of the sharing economy business model for comparison with the traditional models of pure sales and servicizing. We find that the manufacturer may prefer peer-to-peer product-sharing over pure sales or hybrid servicizing under two sets of conditions: (1) either consumers are sufficiently heterogeneous in their product usage needs, while concurrently the size of high-usage consumers being relatively small, or consumers are sufficiently homogeneous in their product usage needs, while concurrently consumer segments with different usage needs being similar in size, and (2) the marginal cost of production (per unit of efficiency) and the manufacturer’s ability to pool consumers’ needs are both sufficiently low. The sharing economy can also environmentally outperform traditional business models, especially for products where environmental impact accrues mostly at production/disposal than at usage. As a result, the sharing economy can yield a win–win outcome as to manufacturer’s profits and environmental impact.