Why the sharing economy can be good news for manufacturers

The sharing economy can benefit manufacturers

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

Not necessarily, says Jose Guajardo, a Berkeley-Haas assistant professor in the Operations and Information Technology Management Group. 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.

“There is a large variety of cases in which the peer-to-peer rentals can be good news for traditional firms,” Guajardo stressed in an interview about the paper, written with Vibhanshu Abhishek and Zhe Zhang of Carnegie Mellon University.

Renting out your ride

The peer-to-peer market is a notable feature of the sharing economy, whose rise represents one of the most innovative business trends of our time. 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 apartment owners. These services are also creating a world in which consumers are not only customers, but potential competitors.

Guajardo and his co-authors 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 in to sales. In a scenario where some car owners do a lot of driving and others just a little, a company’s best option would be to simply 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 I’m considering buying a car, even though I don’t plan to use it every day, the presence of an active car-sharing market may convince me to make the purchase. I know I can make back some of the price by renting it out on days I’m not driving. In this way, the peer-to-peer market gets some middle-range users to buy and enables infrequent drivers to rent, boosting overall consumption.

Sharing economy benefits

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. And 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.