Fair Shares

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Fair Shares

The sharing economy can benefit manufacturers, says Asst. Prof. Jose Guajardo

The rise of Uber and Lyft has taxi companies running scared, while Airbnb is encroaching on hoteliers. Should firms that make cars or bikes also fear a sales drop as peer-to-peer rental apps make it easy to borrow wheels on demand?

Not necessarily, says Assistant Professor Jose Guajardo. In a recent working paper, he suggests emerging peer-to-peer rental markets represent more opportunity than menace for manufacturers. That’s because the existence of these markets might tip the scales for ambivalent buyers who know they can recoup some money from a big purchase—and also because these markets open new opportunities for companies savvy enough to exploit them.

Peer-to-peer rental companies like Turo for cars and Spinlister for bikes allow regular people to rent out their rides—similar to what Airbnb has done for home owners—creating a world in which consumers are not only customers but potential competitors as well.

Guajardo and his co-authors from Carnegie Mellon University built a model to analyze this rental market’s effects on manufacturers. They found that whether these companies are hurt or helped depends critically on how often people use the products.

Take car sharing, for example. Guajardo’s model showed that in a scenario where nearly all drivers use their cars with about the same frequency, manufacturers are better off without peer- to-peer rentals, which might cut into sales. In a scenario where some car owners do a lot of driving and others just a little, a company’s best option would simply be to sell to frequent drivers and rent to occasional motorists.

It is when there is a moderate disparity in driving habits within a marketplace that manufacturers can benefit from peer-to-peer rentals. The explanation is simple: If you’re considering buying a car, even though you don’t plan to use it every day, the presence of an active car-sharing market—and ability to make back some of the price by renting it out on non-driving days—may convince you to make the purchase. In this way, the peer-to-peer market gets some middle-range users to buy and enables infrequent drivers to rent, boosting overall consumption.

Guajardo and his co-authors say they believe their paper is the first to highlight variation in usage as a key factor determining peer-to-peer market effects. He says he hopes the research demonstrates the benefits available to manufacturers, which can exploit this new market by adjusting their business models and investing in or starting their own peer-to-peer operations.

It’s a lesson not lost on some of the nation’s largest corporations, especially in the auto industry. Ford has invested in bike sharing— recently rolling out a fleet of Ford GoBikes in the Bay Area. Tesla CEO Elon Musk has declared that his company will let Tesla owners tap a button on their phones to rent out their vehicles, generating income that could make the pricy electric cars more affordable.

Meanwhile, peer-to-peer markets can save consumers money whether they’re owners or renters. “It can be a win-win situation for both manufacturers and consumers,” Guajardo says. —Sam Zuckerman

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