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The Sharing Economy: Getting Started
Zhixuan Fang (房智轩) November 14, 2018
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Introduction
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The Sharing Economy: Getting Started Zhixuan Fang ( ) November 14, - - PowerPoint PPT Presentation
The Sharing Economy: Getting Started Zhixuan Fang ( ) November 14, - - PowerPoint PPT Presentation
The Sharing Economy: Getting Started Zhixuan Fang ( ) November 14, 2018 1 Introduction The sharing economy has arrived: 2 Introduction Sharing industry is big: 3 Introduction However, we still dont fully understand the
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Introduction
Sharing industry is big:
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However, we still don’t fully understand the following aspects…
Introduction
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Introduction
➢ What is sharing economy and what’s new versus renting?
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Introduction
➢ What is the optimal pricing strategy?
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Introduction
➢ More importantly, most platforms are revenue-driven.
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How do they impact social welfare?
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The Big Picture
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Platform Suppliers Consumers
Consumers rent idle resources from suppliers through the platform
Pay Pay
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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
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The sharing economy rises around 2010
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Why We Participate?
- Have idle resources
- Make some money
- Meet different people
- Happy to help
- ……
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Platform Suppliers Consumers Pay Pay
- 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 ……
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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 owners NO≥2 NR renters Action: sets per unit price p Platform
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Model
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Action: renting Utility: Usage Benefit NR renters Platform NO owners NO≥2 Level of usage
Model
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Action: renting Utility: Strategy: NR renters Platform NO owners NO≥2
Model
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Action: self-use and sharing NR renters Platform NO owners NO≥2
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Model
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Action: self-use and sharing Utility: NR renters Platform Benefit from self-usage NO owners NO≥2 ( )
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Model
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Action: self-use and sharing Utility: NR renters Platform Matching probability. NO owners NO≥2 ( )
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The coupling of owner’s supply makes it a game.
Model
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Action: self-use and sharing Utility: NR renters Platform c = cost per unit, e.g., gas. NO owners NO≥2 ( )
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Model
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Action: self-use and sharing Utility: Strategy: NR renters Platform NO owners NO≥2 ( )
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Model
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Action: self-use and sharing Utility: NR renters Platform NO owners NO≥2 Action: renting Utility: Action: sets per unit price p Revenue:
Model
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10 20 30 50 100 150 200
Price Demand
Demand Supply
How to Price Optimally
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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
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10 20 30 50 100 150 200
Price Demand
Demand Supply
How to Price Optimally
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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
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10 20 30 50 100 150 200
Price Demand
Demand Supply
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
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Recall: Platform’s revenue is:
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When is revenue maximized?
5 10 15 20 25 50 100
Revenue R(p) Demand Supply
Price Demand
600 800 400 200
Revenue
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Recall: Platform’s revenue is:
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When is revenue maximized?
5 10 15 20 25 50 100
Revenue R(p) Demand Supply
Price Demand
600 800 400 200
Revenue
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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 25 50 100
Revenue V(p) Demand Supply
Price Demand
600 800 400 200
Revenue
ppotential
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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 25 50 100
Revenue V(p) Demand Supply
Price Demand
600 800 400 200
Revenue
ppotential
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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 q Base pay p Bonus B(s) “Loyalty Program”
Platform’s revenue:
q=(1+β)p
Supplier’s utility:
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Introducing Loyalty Program
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Suppliers Consumers Pay q Base pay p Bonus B(s) “Loyalty Program” q=(1+β)p
Homogeneous market: Heterogeneous market: (highly differentiated users)
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Supplier’s Trade-off
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Supplier’s utility:
Marginal benefit of self usage Sharing in loyalty program Sharing in fixed price sharing self use
Supplier will choose intersection points to balance marginal incomes
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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+B p
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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)!
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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
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Marginal utility
Platform pays nothing before threshold!
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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
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Welfare and revenue optimal prices
Social welfare and platform revenue are aligned in real case!
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Didi’s ratio ppotential = 12 psw pr
Case Study – Welfare & Revenue
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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
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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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