Next Economic Analysis Seminar Series

Título: "Peer-to-Peer Sharing, Price Competition, and Consumers' Awareness"

 

Coautoras: Carmen Arguedas (U. Autónoma de Madrid), Claudia Ranocchia (U. Tilburg) y Sandra Rousseau (Universidad Católica de Lovaina)

 

Abstract: We investigate the incentives of consumers and firms to take part in the circular economy. In the case of consumers, such participation takes the form of sharing goods instead of buying them only for their own use. In the case of firms, they can supply goods that are suitable to be shared in digital platforms (circular goods) rather than standard goods. To this end, we present a model of product differentiation where two firms can offer either a standard or a circular version of a product. Consumers are heterogeneous concerning the proportion of time they use the good for themselves and can end up being either consumers of the standard variety, or prosumers or users of the circular variety. We characterize the equilibrium for a given degree of maturity of the sharing market, consumers' degree of heterogeneity regarding the intensity of use, marginal cost differences between the two varieties and whether consumers care for circularity. This last feature is key to our results. In the absence of environmental awareness, there is very little space for the circular product to coexist with a standard variety: the circular variety is more expensive, has a lower market share, and results in lower, albeit positive, profits. Things change dramatically if consumers experience bad conscience when purchasing the standard version: the circular product continues to be more expensive, but it may beat the standard variety in market share and profits. This can even result in both firms offering the circular variety in equilibrium. Our findings suggest that consumers' environmental awareness is key to accelerating the transition towards the circular economy.