How to React to Internal and External Sharing in B2C and C2C

The sharing economy has developed rapidly in recent years using both business‐to‐customer (B2C) and customer‐to‐customer (C2C) models. This has exerted a profound impact on incumbent firms that follow a traditional sales model. Although the effects of B2C or C2C sharing in certain scenarios have been studied by prior literature, the effect of external B2C sharing has not been considered. Furthermore, the possible distinction between the two sharing effects as well as incumbent firms’ decisions on the sales and sharing models under the internal and external environments have not been addressed. This study compares the effects of B2C and C2C sharing in an internal sharing scenario where an incumbent firm can extend into the sharing business. Due to the difference in sharing agents, we also consider an external sharing scenario where an independent entrant firm can provide B2C or C2C sharing and strategically set price. From the perspectives of product cost and sharing transaction cost, we present several new managerial insights to expand on existing literature. First, under the internal sharing scenario, interestingly, the incumbent firm benefits from extending into the B2C or C2C sharing business only when the product cost is above a threshold, and it prefers to extend into the C2C sharing business unless the per‐period transaction cost of C2C sharing is much higher than that of B2C sharing. In addition, it is shown that the incumbent firm may need to produce more products for sales, or maintain lower sharing supply when it extends into the B2C sharing business than those when it extends C2C sharing, which is somewhat counter‐intuitive. Under the external sharing scenario, we observe that the B2C sharing business benefits the incumbent firm merely when the product cost is high, similar to the impact of C2C sharing. Meanwhile, if the per‐period transaction cost of C2C sharing is much higher than that of B2C sharing, then the positive impact of external B2C sharing on the incumbent firm’s profitability should be stronger than that of external C2C sharing. Moreover, external B2C sharing actually increases the sales demand of the incumbent firm under the conditions of low product cost and high sharing transaction cost, while external C2C sharing might increase it as well in the condition of high product cost. Both external B2C and C2C sharing may lead to a higher rental price than internal sharing in the presence of high product cost. Furthermore, even though the product cost is low, there should be higher customer surplus and total social welfare in the external B2C or C2C sharing scenarios. For constructing a comprehensive framework of sharing scenarios, we also extend our model to a setting where the incumbent firm could extend both B2C and C2C sharing in the internal and external environments. It is shown that the incumbent firm always extends into the sharing business to compete against the entrant firm in the external sharing scenario.