The Advent of the Sharing Culture and its Effect on Product Pricing

Empirical observations suggest that consumers' propensity towards sharing varies with culture and the individuals' socio-demographic characteristics. In an economy with overlapping generations of heterogeneous consumers, we study optimal dynamic selling by a durable-goods monopolist in equilibrium. Feasible dynamic pricing strategies include second-degree price discrimination offering intertemporal consumption bundles in the form of rental and/or purchase options. We find that as the population's peer-trade propensity increases, possibly due to a cultural shift from private ownership to collective consumption, the durable-goods monopolist's optimal strategy shifts from unbundling (offering exclusively rentals), via mixed bundling (offering the options of rental and purchase side-by-side), to pure bundling (offering purchase only). We show that an increase in peer-trade propensity has an ambiguous effect on the firm's profit. Cultural shifts from low to high peer-trade propensity may be delayed by a firm's attempts to artificially disable sharing markets by offering overly low rental rates. However, beyond a certain threshold of peer-trade propensity, the firm prefers a cultural transition to an access-based economy. The underlying reason is that the asset base of a sharing economy ultimately depends on the firm's output, so that a portion of the anticipated rents from sharing can be captured by the durable-goods monopolist.