The Economics of Peer-to- Peer Car Sharing. Presenter: Guangwen Kong Co-author: Saif Benjaarfar Xiang Li University of Minnesota

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1 The Economics of Peer-to- Peer Car Sharing Presenter: Guangwen Kong Co-author: Saif Benjaarfar Xiang Li University of Minnesota

2 Sharing Economy: P2P Car Sharing car sharing has become an increasingly popular trend Car renter Car owner Rent great cars from people nearby Unlock 1,000's of cars from $5/hour. Share your car. Earn $10,000 per year.

3 Potential Benefits Reduce car ownership Reduce car usage Reduce affiliated resources, such as parking space, congestion

4 Research Questions How does sharing economy affect ownership and usage of resources? Does collaborative consumption always lead to greater sustainability (i.e., leads to lower ownership, lower usage, or both)? Who benefits most from collaborative consumption, those who own, those who rent, or the platform that matches owners and renters?

5 Two sided market Rochet and Tirole 2006; Parker and van Alstyne 2005; Eisenmann et al. 2006; and Mongell and Roth On-demand mobility systems Schuijbroek et al.2013; Raviv and Kolka 2013; Shu et al Lease v.s. Buying Literature Review Desai and Purohit 1998; Hendel and Lizzeri 2002; Johnson and Waldman 2003 Social sharing of information goods Bakos et al. 1999; Galbreth et al. 2012; Conner and Rumelt 1991; Takeyama 1994; Shy and Thisse 1999; Varian 2005

6 Main Features A consumer has exogenous usage type ξ and chooses to be either owner or renter. A renter pays price rate p for each unit of usage, and an owner pays commission γp to the platform An owner can always use their own car and will be able to rent out the car with probability β when the car is not in use. A renter will successfully rent a car with probability α

7 Peer-to-Peer Car Sharing Car Owner: - Car purchasing cost c - Commission fee pγ to platform - Moral hazard cost of renting out a car w Car Renter: - Price rate p to car owner - Inconvenience cost d

8 Basic Model Car Renter π r ξ = (u ξ pξ dξ)β Car Owner π o ξ = u ξ α 1 ξ ( 1 γ p w) c Car Renter Car Owner 0 π r ξ π o ξ θ π r ξ π o ξ 1 π r ξ 0 π o ξ 0 π r θ = π o θ

9 Matching Supply with Demand Supply D θ = 0,θ ξf ξ dξ Demand S θ = θ,1 (1 ξ)f ξ dξ Balance supply with demand αs θ = βd(θ) Measure of car utilization ϼ θ = D(θ) S(θ) Estimate α and β from ϼ(θ) Then find the fixed point of π r θ = π o θ αs θ = βd(θ)

10 Multi-server loss queueing ϼ θ system G/G/S/S Queue Approximation α = 1+ϼ θ the probability of renting a car out for an owner β = 1 1+ϼ θ the probability of finding a car available for a renter

11 Exogenous Price: Equilibrium Results Ownership ω = 1 θ Usage q = 1 α θ 2 2 Increases with - price - inconvenience cost Decreases with -commission, -fixed ownership cost -moral hazard

12 Ownership is higher under collaborative consumption when p is large c=0.3 c=0.7 Ownership is higher under Collaborative consumption when p is high The threshold p w decreases with c

13 Usage is higher under collaborative consumption when p is large c=0.3 c=0.7 Usage is higher under Collaborative consumption when p is high The threshold p q decreases with c

14 When is it more sustainable?

15 Endogenous Price: private platform s problem max p,γ π p = γpαs(θ) subject to: π o θ = π r (θ) α = D(θ) D θ +S(θ) π o ξ π r ξ for ξ θ π o ξ π r ξ for ξ θ π o ξ 0 for ξ θ π r ξ 0 for 0 ξ θ

16 When is it more sustainable?

17 Endogenous Price: Social Welfare and Public Platform max p,γ π p = ttttt ssssss wwwwwww subject to: π o θ = π r (θ) α = D(θ) D θ +S(θ) π o ξ π r ξ for ξ θ π o ξ π r ξ for ξ θ π o ξ 0 for ξ θ π r ξ 0 for 0 ξ θ

18 Comparison: Public and Private Platform Private platform induce more ownership than public platform.

19 Comparison: Public and Private Platform Private platform charges a higher price p

20 Can Public Platform Implement Social Optimal? There exists γ (c) such that the public platform can implemental social optimal if γ γ c = p = 1 θ s 2 θ s 2θ s2 2θ s +1 θ s 2 (1 γθ s )(2θ s2 2θ s + 1)

21 Numerical Analysis: Monotonicity with d - Both Social welfare and private platforms profit decrease with inconvenience cost d. - Platform s incentive to reduce inconvenience cost align with social welfare.

22 Numerical Analysis: Non-monotonicity with w Social welfare decrease with moral hazard w. Private platform s profit decrease with moral hazard w when c is large. Private platform s profit is non-monotone with moral hazard w when c is small. Social planer s incentive to reduce moral hazard does not align with private platforms!

23 Conclusion Collaborative consumption can induce higher ownership and higher usage and thus less sustainability. Public platform leads to lower ownership and usage than private platform, and can implement social optimal. The incentive of reducing moral hazard by a private platform is not aligned with social planner.