New Publication on Pricing and Payoffs in the Sharing Economy
© 2016 EPFL
In “Product Pricing in a Peer-to-Peer Economy,” to appear later this year in the Journal of Management Information Systems, Prof. Thomas Weber discusses the impact of sharing on the prices of new products and on the well-being of firms and consumers in the economy.
The emergence of a collaborative economy has been driven by advances in information technology that allow consumers to borrow and rent goods among peers on a secondary sharing market. In a dynamic setting, consumers make intertemporal decisions about purchases and their participation in the sharing market. This paper introduces an overlapping-generations model to analyze product pricing and consumer choice with and without a sharing market. The model quantifies the impacts of a peer-to-peer economy on the demand for ownership, the product price, and all participants’ payoffs, including consumer surplus, profits, and social welfare. Given consumers that are heterogeneous with respect to their consumption needs and valuations, it illustrates which of them are prone to participate in a sharing economy and whether a retailer (or manufacturer) can benefit from the presence of a secondary exchange. A sharing market tends to increase the price of new products by a “sharing premium,” which positively depends on the retailer’s commitment ability. The price increment becomes relatively smaller for higher-cost products. Low-cost products and sufficiently impatient consumers together make a peer-to-peer economy unattractive for retailers. For high-cost products, however, the latter stand to gain from the existence of a sharing market. Most importantly, the introduction of a peer-to-peer economy increases both consumer surplus and social welfare, thus creating an implicit imperative for a social planner to help promote collaborative consumption, for instance by providing incentives for retailers and manufacturers that tend to offset possible expected negative payoff effects from consumer sharing.
Reference
Weber, T.A. (2016) “Product Pricing in a Peer-to-Peer Economy,” Journal of Management Information Systems, Forthcoming. [Preprint: http://ssrn.com/abstract=2778571 ]
Links
- News Release on the Sharing Economy, EPFL, February 2016
- News Release on the Sharing Economy, EPFL, January 2015
- News Release on Collaborative Consumption, EPFL, July 2014
- Chair of Operations, Economics and Strategy, EPFL
- More Information about OES