Optimal Retail in a Sharing Economy

The emerging sharing economy is fueled by products that some consumers buy new. This paper introduces an overlapping-generations model to analyze consumers’ consumption choices and the equilibrium in the sharing market. We derive a retailer’s optimal pricing strategy and determine the payoff effects of sharing. The presence of a sharing market increases the price of new products, and therefore a retailer may or may not benefit from the existence of a sharing market, depending on how much more inelastic the demand of the remaining buyers becomes. The retailer’s benefits from sharing are largest for high-cost products and in a setting where consumers are relatively patient so that they care about their future consumption options.