Smart Products for Sharing

Sharing markets create mutual insurance for consumers who are unsure about their future needs for goods, thus rendering products more valuable both before and after the purchase. By embedding intelligence in their products, enabling them to sense, monitor, and authorize transfers between users, firms can economically participate in the collaborative consumption of their goods after they have been sold. Building on a dynamic model with overlapping generations of heterogeneous agents, we determine a firm's jointly optimal product price and sharing tariff. The active use of product intelligence as a gatekeeper for collaborative consumption can narrow the gap between the retail and the equilibrium price in the sharing market. Because of its tendency to decrease the demand for ownership, the use of smart products with a positive sharing tariff does not always maximize the firm's overall expected profits. A positive sharing tariff tends to be profitable with relatively high unit production cost and impatient consumers.