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The Sharing Economy: Getting Started
Zhixuan Fang (房智轩)
November 14, 2018
1
Introduction
2
The sharing economy has arrived:
3
Introduction
Sharing industry is big:
4
However, we still don’t fully understand the following aspects…
Introduction
Introduction
➢ What is sharing economy and what’s new versus renting?
5
Introduction
➢ What is the optimal pricing strategy?
6
Introduction
➢ More importantly, most platforms are revenue-driven.
7
How do they impact social welfare?
The Big Picture
8
PlatformSuppliers Consumers
Consumers rent idle resources from suppliers through the platform
PayPay
When & What?
Company Area Country Founded
Uber Ride sharing United States 2009
Didi Chuxing Ride sharing China 2012
Lyft Ride sharing United States 2012
Mobike Bike sharing China 2015
Airbnb Accommodation United States 2008
Grab Transportation Singapore 2011
Ola Transportation India 2010
Taskrabbit P2P service United States 2008
9
The sharing economy rises around 2010
Why We Participate?
• Have idle resources
• Make some money
• Meet different people
• Happy to help
• ……
10
PlatformSuppliers Consumers
PayPay
• In need of service/resource
• Even better if it saves money
• Feels more user friendly
• Save the planet
• ……
➢ Economic incentive ➢ Social interaction ➢ Environmental concern➢ Others ……
What’s New?
• Real time fluctuated demand and supply– Real time finely tuned pricing strategy, e.g., surge pricing
• Heterogeneous selfish individual suppliers and consumers– Personalized incentive and pricing
• Matching demand and supply– With huge amount of spatio-temporal data
• Platform sets prices (not always the case)– Selfish intermediary
• User can switch identity between suppler and consumer– Use it, or own it?
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Key Questions
➢Revenue vs. Welfare• How to improve them?
• Can we improve them simultaneously?
• If so, under what circumstances?
➢ Supply vs. Demand• How are they responding to price/subsidy?
• How do they affect revenue and welfare?
• How to better match them?
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NO ownersNO≥2
NR renters
Action: sets per unit price p
Platform
13
Model
Action: renting
Utility:
Usage Benefit
NR renters
Platform
NO ownersNO≥2
Level of usage
Model
14
Action: renting
Utility:
Strategy:
NR renters
Platform
NO ownersNO≥2
Model
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Action: self-use and sharing
NR renters
Platform
NO ownersNO≥2
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Model
Action: self-use and sharing
Utility:
NR renters
Platform
Benefit from self-usage
NO ownersNO≥2
( )
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Model
Action: self-use and sharing
Utility:
NR renters
Platform
Matching probability.
NO ownersNO≥2
( )
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The coupling of owner’s supply makes it a game.
Model
Action: self-use and sharing
Utility:
NR renters
Platform
c = cost per unit, e.g., gas.
NO ownersNO≥2
( )
19
Model
Action: self-use and sharing
Utility:
Strategy:
NR renters
Platform
NO ownersNO≥2
( )
20
Model
Action: self-use and sharingUtility:
NR renters
Platform
NO ownersNO≥2
Action: rentingUtility:
Action: sets per unit price pRevenue:
Model
21
0 10 20 30
50
100
150
200
0
Price
Dem
and
DemandSupply
How to Price Optimally
22
Theorem 1.1: Unique Nash equilibrium exists.
Moreover, the equilibrium behavior falls into four regimes
(i) Exists pc, such that S(pc) = D(pc)
(ii) For 0 < p < pc, S(p) < D(p) and S(p) is non-decreasing
(iii) For pc < p ≤ pupper, S(p) ≥ D(p)
(iv) For p > pupper, S(p) = 0
pc
0 10 20 30
50
100
150
200
0
Price
Dem
and
DemandSupply
How to Price Optimally
23
Theorem 1.2: Regarding psw and pr :
(i) pc maximizes welfare (psw = pc);
(ii) pr leads to over supply (pr ≥ pc );pc
Theorem 1.1: Unique Nash equilibrium exists.
Moreover, the equilibrium behavior falls into four regimes
(i) Exists pc, such that S(pc) = D(pc)
(ii) For 0 < p < pc, S(p) < D(p) and S(p) is non-decreasing
(iii) For pc < p ≤ pupper, S(p) ≥ D(p)
(iv) For p > pupper, S(p) = 0
0 10 20 30
50
100
150
200
0
Price
Dem
and
DemandSupply
How is Supply Responding to Price?
• It increases first.
• It could decrease after pc .
• It is aligned with platform’s revenue.
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pc
Recall: Platform’s revenue is:
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When is revenue maximized?
5 10 15 20 250
50
100
Revenue R(p)DemandSupply
Price
Dem
and
0
600
800
400
200
Rev
enu
e
Recall: Platform’s revenue is:
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When is revenue maximized?
5 10 15 20 250
50
100
Revenue R(p)DemandSupply
Price
Dem
and
0
600
800
400
200
Rev
enu
e
Define - V(p) = pD(p): the maximum possible revenue for platform- ppotential = argmax V(p): the best potential price
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When is revenue maximized?
5 10 15 20 250
50
100
Revenue V(p)DemandSupply
Price
Dem
and
0
600
800
400
200
Rev
enu
e
ppotential
When is revenue maximized?
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Theorem 1.5: If ppotential ≥ pc , the platform achieves maximum revenue by pr = ppotential . Otherwise psw = pr = pc .
Remark: Supply shortage is a barrier for achieving max revenue
Hence subsidy!
5 10 15 20 250
50
100
Revenue V(p)DemandSupply
Price
Dem
and
0
600
800
400
200
Rev
enu
e
ppotential
Subsidies
➢Why need subsidies?• Help increase supply and revenue
• Lock in loyalty suppliers in platform competition
➢How are subsidies paid?• Proportional to supplier’s sharing level
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Introducing Loyalty Program
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Suppliers Consumers
Pay qBase pay p
Bonus B(s)
“Loyalty Program”
Platform’s revenue:
q=(1+β)p
Supplier’s utility:
Introducing Loyalty Program
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Suppliers Consumers
Pay qBase pay p
Bonus B(s)
“Loyalty Program”q=(1+β)p
Homogeneous market:
Heterogeneous market:(highly differentiated users)
Supplier’s Trade-off
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Supplier’s utility:
Marginal benefit of self usage Sharing in loyalty programSharing in fixed price
sharingself use
Supplier will choose intersection points to balance marginal incomes
Homogeneous Market
Definition 2.1: A linear loyalty program (LLP) pays a constant bonus B for per unit sharing, to those who reach threshold t.
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Marginal price under LLP Sharing under LLP
s0
s
p+Bp
Homogeneous Market
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Theorem 2.2: LLP achieves the maximum revenue over all subsidy programs in a monopoly market, and the optimal bonus satisfies:
Marginal price under LLP
= q Independent of f(x)!
Homogeneous Market
Corollary 2.3: The maximum platform revenue is achieved by letting
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f’(x)
B(s)s=1-x
t
B
x
Mar
gin
al u
tilit
y
Platform pays nothing before threshold!
Based on real data from Didi- It contains 395,938 actual transaction records on Jan 8 2016.
Reverse-engineer user benefit function- We derive usage behavior from price-frequency curve.
(α=19190, β=0.0832)
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Benefit function:
Case Study - Setup
Welfare and revenue optimal prices
Social welfare and platform revenue are aligned in real case!
37
Didi’s ratio
ppotential = 12
psw
pr
Case Study – Welfare & Revenue
The effect of cost
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Owners will suffer all the lost!
pc
A properly chosen c can reduce redundant supply
Case Study – Role of Cost
Take Away
✓ Sharing economy is a rising topic that requires researchers from different area
✓ Revenue maximization is also good for welfare, especially under insufficient supply
✓ Subsidies increase supply and platform’s revenue
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