Product Sharing: A Threat or an Opportunity for Competing Manufacturers?

Abstract

This paper studies the impact of product sharing on competing manufacturers under a platform’s different quality entry barrier strategies. We build a game-theoretic analytical model to examine the strategies of two manufacturers: A high-quality manufacturer producing a high-quality product and a low-quality manufacturer producing a low-quality product. We explore three markets: The N-S market where the sharing market does not exist, the L-S market, and the H-S market, where the platform sets low and high entry barriers, respectively. We study these three markets because they bracket the most common platform entry policies in practice—no sharing, low-barrier (open access), and high-barrier (quality-gated) participation. Our findings indicate that while product sharing makes it easier for the high-quality manufacturer to survive, it may not necessarily improve the survival likelihood of the low-quality manufacturer. Furthermore, we demonstrate that the existence of the sharing market may negatively impact both manufacturers. To the best of our knowledge, this study is the first to investigate how competing manufacturers, platforms, and consumers can cope with the sharing phenomenon. We show that, while the high-quality manufacturer prefers a low cost of quality in all three markets, the low-quality manufacturer, interestingly, prefers a high cost of quality in both product-sharing markets. Additionally, we illustrate that the platform should not always set a low entry barrier to allow more product types to join. Surprisingly, our results show that although product sharing always benefits social welfare, it could potentially harm consumers.