The Sharing Economy: Getting Started Zhixuan Fang ( ) November 14, - PowerPoint PPT Presentation

The Sharing Economy: Getting Started Zhixuan Fang ( 房智轩 ) November 14, 2018 1

Introduction The sharing economy has arrived: 2

Introduction Sharing industry is big: 3

Introduction However, we still don’t fully understand the following aspects … 4

Introduction ➢ What is sharing economy and what’s new versus renting? 5

Introduction ➢ What is the optimal pricing strategy? 6

Introduction ➢ More importantly, most platforms are revenue-driven. How do they impact social welfare? 7

The Big Picture Consumers rent idle resources from suppliers through the platform Pay Pay Platform Suppliers Consumers 8

When & What? The sharing economy rises around 2010 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 9

Why We Participate? Pay Pay Platform Suppliers Consumers • • Have idle resources In need of service/resource • • Make some money Even better if it saves money • • Meet different people Feels more user friendly • • Happy to help Save the planet • • …… …… ➢ Economic incentive ➢ Social interaction ➢ Environmental concern ➢ Others …… 10

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? 11

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? 12

Model N R renters N O owners N O ≥2 Platform Action: sets per unit price p 13

Model N R renters N O owners N O ≥2 Platform Action: renting Level of usage Utility: Usage Benefit 14

Model N R renters N O owners N O ≥2 Platform Action: renting Utility: Strategy: 15

Model N R renters N O owners N O ≥2 Platform Action: self-use and sharing 16

Model N R renters N O owners N O ≥2 Platform Action: self-use and sharing Benefit from self-usage Utility: ( ) 17

Model N R renters N O owners N O ≥2 Platform Action: self-use and sharing Matching probability. Utility: ( ) The coupling of owner’s supply makes it a game . 18

Model N R renters N O owners N O ≥2 Platform Action: self-use and sharing Utility: ( ) c = cost per unit, e.g., gas. 19

Model N R renters N O owners N O ≥2 Platform Action: self-use and sharing Utility: ( ) Strategy: 20

Model N R renters N O owners N O ≥2 Platform Action: self-use and sharing Action: sets per Action: renting Utility: unit price p Utility: Revenue: 21

How to Price Optimally Theorem 1.1: Unique Nash equilibrium exists. Moreover, the equilibrium behavior falls into four regimes (i) Exists p c , such that S ( p c ) = D ( p c ) (ii) For 0 < p < p c , S ( p ) < D ( p ) and S ( p ) is non-decreasing (iii) For p c < p ≤ p upper , S ( p ) ≥ D ( p ) (iv) For p > p upper , S ( p ) = 0 200 Demand Supply 150 Demand p c 100 50 0 0 10 20 30 Price 22

How to Price Optimally Theorem 1.1: Unique Nash equilibrium exists. Moreover, the equilibrium behavior falls into four regimes (i) Exists p c , such that S ( p c ) = D ( p c ) (ii) For 0 < p < p c , S ( p ) < D ( p ) and S ( p ) is non-decreasing (iii) For p c < p ≤ p upper , S ( p ) ≥ D ( p ) (iv) For p > p upper , S ( p ) = 0 200 Theorem 1.2: Regarding p sw and p r : Demand Supply 150 (i) p c maximizes welfare ( p sw = p c ) ; Demand p c (ii) p r leads to over supply ( p r ≥ p c ); 100 50 0 0 10 20 30 Price 23

How is Supply Responding to Price? • It increases first. • It could decrease after p c . • It is aligned with platform’s revenue. 200 Demand Supply 150 Demand p c 100 50 0 0 10 20 30 Price 24

When is revenue maximized? Recall: Platform’s revenue is: 800 100 600 Revenue Demand 400 50 Revenue R(p) 200 Demand Supply 0 0 5 10 15 20 25 Price 25

When is revenue maximized? Recall: Platform’s revenue is: 800 100 600 Revenue Demand 400 50 Revenue R(p) 200 Demand Supply 0 0 5 10 15 20 25 Price 26

When is revenue maximized? Define - V ( p ) = pD ( p ) : the maximum possible revenue for platform - p potential = argmax V ( p ) : the best potential price p potential 800 100 600 Revenue Demand 400 50 Revenue V(p) 200 Demand Supply 0 0 5 10 15 20 25 Price 27

When is revenue maximized? Theorem 1.5: If p potential ≥ p c , the platform achieves maximum revenue by p r = p potential . Otherwise p sw = p r = p c . p potential Remark: 800 Supply shortage is a 100 barrier for achieving 600 max revenue Revenue Demand 400 50 Hence subsidy! Revenue V(p) 200 Demand Supply 0 0 5 10 15 20 25 Price 28

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 29

Introducing Loyalty Program Base pay p Pay q q =(1+ β ) p Bonus B(s) “Loyalty Program” Suppliers Consumers Supplier’s utility: Platform’s revenue: 30

Introducing Loyalty Program Base pay p Pay q q =(1+ β ) p Bonus B(s) “Loyalty Program” Suppliers Consumers Homogeneous market: Heterogeneous market: (highly differentiated users) 31

Supplier’s Trade -off Supplier’s utility: Marginal benefit of self usage Sharing in fixed price Sharing in loyalty program self use sharing Supplier will choose intersection points to balance marginal incomes 32

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 . Marginal price under LLP Sharing under LLP s s 0 p+B p 33

Homogeneous Market 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 Independent of f(x) ! = q 34

Homogeneous Market f’(x) Corollary 2.3: The maximum B(s) platform revenue is achieved Marginal utility s=1-x by letting t B x Platform pays nothing before threshold! 35

Case Study - Setup 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. Benefit function: ( α=19190, β=0.0832 ) 36

Case Study – Welfare & Revenue Welfare and revenue optimal prices p sw p r Social welfare and platform revenue are aligned in real case! Didi’s ratio p potential = 12 37

Case Study – Role of Cost The effect of cost A properly chosen c can reduce p c redundant supply Owners will suffer all the lost! 38

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 39