Research | How Does the Sharing Economy Influence Traditional Industries?
2020-07-03 16:41:53
phbs phbs phbs
PHBS Associate Professor Zeng Xiaohua addresses this question in research paper

The sharing economy is one of the fastest growing business trends in history, with estimated growth from $14 billion in 2014 to $335 billion by 2025 (Ravi & Shamika, 2017), which has shared up traditional industries. As the unicorn in the ride-hailing industry, Didi connects consumers who need transportation with private drivers in exchange for payment via the company’s app. Would you choose ride-hailing rather than buy a new car? Or have you ever thought of buying your own car and becoming a Didi driver?  

According to PHBS Associate Professor Zeng Xiaohua and coauthors Guo Yue of Southern University of Science and Technology and Li Xiaotong of the University of Alabama, ride-hailing services turn out to be a double-edged sword for a new car purchase. Their paper, “Platform Competition in the Sharing Economy: Understanding How Ride-Hailing Services Influence New Car Purchases,” has been published in the Journal of Management Information Systems (JMIS). JMIS is one of the top 50 business school journals on the Financial Times FT50 list.

The researchers studied the impact of ride-hailing platforms on new car purchases in the presence of platform competition. Ride-hailing apps provide a medium for passengers to easily call for cars and may discourage private car ownership. Yet, these platforms provide flexible job opportunities for private drivers and increase the value of car ownership. This scenario will be more complex in the presence of platform competition.

Zeng and co-authors collected monthly panel data on new car registration plates from 2013 to 2015, when two leading ride-hailing platforms (Didi Chuxing and Uber) rolled out their services across select cities in China. “While the entry of a single ride-hailing platform led to a decline in new car purchases, platform competition mitigated the negative impacts of platform entries,” the collaborators noted. A plausible reason is that the two competing platforms may have provided subsidies to drivers such that more people purchased new cars in order to sign up as drivers.

The authors found that platform competitive strategy is driven by net effects in the two-sided market. Drivers want more passengers on the platform to improve vehicle utilization, and passengers prefer more drivers on the platform to minimize waiting time. To implement more effective analytics to align supply with demand, platforms must attract more users on both sides (drivers and passengers). However, a key question is which side of the market should a platform subsidize? Platform competition may increase the purchase of new cars (if drivers are subsidized) or reduce the purchase of new cars (if passengers are subsidized).

To explore the mechanism, the authors compared different cities and found that following the entry of ride-hailing platforms, the sales of new cars fell markedly in those treated cities relative to the control cities. However, the sales declined to a lesser extent in the cities with more intense competition. Furthermore, they compared different car brands and found that platform competition actually increased sales of budget-friendly brands commonly used by ride-hailing drivers, confirming growth in new car purchases by drivers rather than passengers. By contrast, sales of luxury car brands are largely unaffected by platform competition.

The authors point out that this research reveals the influence of the sharing economy on traditional industries. It can help the government make early predictions about the sharing economy’s development speed and, therefore, to consider relevant comprehensive policy making.

Zeng Xiaohua
Associate Professor
Her research areas include social networking, the sharing economy, user-generated content, competitive strategies.

Reference: Yaraghi, Niam; Ravi, Shamika (2017). “The Current and Future State of the Sharing Economy,” Brookings India IMPACT Series No. 032017. March 2017.

By Ning Ding
Edited by Priscilla Young and Annie Jin