The manufacturer’s strategic involvement in product sharing

Abstract

Recently, the emergence of the sharing economy impacts significantly on consumer purchase behavior and firms’ operations management. To mitigate the negative effects of peer-to-peer product sharing, many manufacturers have participated in the sharing market by providing rental service through a third-party or self-built platform to occupy more market shares. In this paper, we develop an analytical framework to examine the conditions for the manufacturer’s involvement in product sharing. We first characterize the optimal pricing and production decisions of all supply chain players assuming that the manufacturer has sufficient capacity. We then derive the optimal investment strategy for the manufacturer when he faces capacity constraints. Our findings indicate that the manufacturer can benefit from participating in the sharing market only if consumers have a high perceived value and use need of shared products or the cost of building a platform is low. We also find that the manufacturer’s involvement in the sharing market always hurts the retailer’s profit.