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Pricing Strategy of Sharing Economy with Cross-Group Network Effect

The development of Uber has attracted people's attention to the sharing economy and has encouraged other industries, such as Airbnb and StyleSeat, to develop sharing platforms. This study investigates and compares the sharing and traditional models. Utilizing a game theoretical model, we examined the optimal pricing in these two models. We find that the price in the sharing model tends to be lower than that in the traditional model when the marginal cost of a service is high. In addition, the sharing model is likely to earn a higher profit. The demand for high- and low-quality services is less balanced in the sharing model than in the traditional model. The percentage of profit induced by low-quality services in the traditional model can easily increase to more than 50% in the traditional model and decrease to less than 50% of that in the sharing model. When the cross-group network effect is strong, the gap between the price for high- and low-quality services is more likely to be small in the sharing model and large in the traditional model.