Owning, Using and Renting: Some Simple Economics of the Sharing Economy

Abstract

Entrepreneurs have created a number of new Internet-based platforms that enable owners to rent out their durable goods when not using them for personal consumption. We develop a model of these kinds of markets in order to analyze the determinants of ownership, rental rates, quantities, and the surplus generated in these markets. Our analysis considers both a short run, before consumers can revise their ownership decisions and a long run, in which they can. This allows us to explore how patterns of ownership and consumption might change as a result of these new markets. We also examine the impact of bringing-to-market costs, such as depreciation, labor costs and transaction costs and consider the platform’s pricing problem. An online survey of consumers broadly supports the modeling assumptions employed. For example, ownership is determined by individuals’ forward-looking assessments of planned usage. Factors enabling sharing markets to flourish are explored.

Keywords: sharing economy, peer-to-peer markets, rentals, Airbnb, Uber, transaction costs

JEL Classification: L1, D23, D47