By Saif Benjaafar (1), Guangwen Kong (1), Xiang Li (1), and Costas Courcoubetis (2)
(1 Department of Industrial and Systems Engineering, University of Minnesota)
(2 Engineering and Systems Design, Singapore University of Technology and Design)
We are witnessing a paradigm shift away from the exclusive ownership and consumption of resources to one of shared use and consumption. This paradigm shift is taking advantage of innovative new ways of peer-to-peer sharing that are voluntary and enabled by internet-based exchange markets and mediation platforms. Value is derived from the fact that most resources are acquired to satisfy peak demand but are otherwise poorly utilized (e.g., the average car in the US is used less than 10 percent). Several successful businesses in the US and elsewhere, such as AirBnB for rooms in private homes, Uber for taxi service, LiquidOffice for office space, RelayRides for private car sharing, and TaskRabbit for errands, among many others, provide a proof of concept and evidence for the viability of the collaborative consumption concept. Collectively, these businesses and other manifestations of collaborative consumption are giving rise to what is becoming known as the sharing economy. Collaborative consumption has the potential of increasing access while reducing investments in resources and infrastructure. In turn this could have the twin benefit of improving consumer welfare (individuals who may not otherwise afford a product now have an opportunity to use it) while reducing societal costs (externalities, such as pollution that may be associated with production, distribution use, and disposal of the product). Take cars for example. The availability of a sharing option is likely to lead some to forego car ownership in favor of on-demand access. In turn, this could result in a corresponding reduction in road capacity and parking infrastructure. However, increased collaborative consumption may have other consequences, some of which may be undesirable. For example, greater access to cars could increase car usage and, therefore, lead to more congestion and pollution if it is not accompanied by a sufficient reduction in the numbers of cars. This could occur if sharing leads to speculative investments in cars and price inflation, or if yet it affects the availability and pricing of other modes of public transport (e.g., taxis, buses, and trains). Collaborative consumption raises several important questions. How does collaborative consumption affect ownership and usage of resources? Is it necessarily the case that collaborative consumption leads to lower ownership, lower usage, or both (and therefore to improved sustainability)? If not, what conditions would favor lower ownership, lower usage, or both? How would the platform set prices, commissions, and membership fees and under what conditions would choices for these parameters lead to socially desirable outcomes? To what extent would a private platform (a platform that maximizes its own profit) improve social welfare? How far would the resulting social welfare be from that obtained under a public platform (a platform that maximizes social welfare)? What public policies, if enacted, would ensure that collaborative consumption would lead to higher social welfare? I the following paper the authors address these and other related questions in the context of peer-to-peer car sharing.