Self-Cannibalization of Durable Goods with Sharing : A Producer Perspective

Facilitated by various online platforms, transaction costs of sharing and selling used and excess products have become almost zero and this phenomenon has created new economic competition between new product sellers and those offering shared and used products. In this paper, we study the economic outcome of a monopolistic producer's self-competition between old and new generations of products. We consider a two-stage game in which a producer sells new products in the market in both stages and used products may enter the market in the form of shared and used goods in the second stage. The model considers owner's holding costs, transaction costs, and income from sharing. We identify the market equilibrium of this two-stage game and provide managerial implications in different types of product markets that are represented by automobiles (with value depreciation) and real estates (with value appreciation). We show that despite the many similarities between Airbnb and Uber, value depreciation/appreciation implies very different competition scenariosOur results highlight the dynamics of two-stage price/quantity equilibria in various product market setups and provide managerial insights for producers of durable goods