Partial vertical ownership cooperation between manufacturers and sharing economy platforms

Given that manufacturers increasingly enter the sharing economy market via equity investment in third-party sharing platforms, this paper establishes a game-theoretical model to characterize such partial vertical ownership (PVO) cooperation. We consider a manufacturer (M) interacting with a retailer (R) and sharing economy platform (SEP), where M first negotiates a transfer payment to SEP for their PVO cooperation and, then, employs two wholesale price contracts for SEP and R to induce operational interactions. We obtain the following results. First, the PVO cooperation level affects SEP’s selection of a P2P or hybrid business model only if M’s marginal sales cost to SEP is moderate. Second, the negotiated transfer payment from M to SEP increases (is constant) in its cooperation level if M’s capital constraint on the transfer payment is non-binding (binding), but it is always strictly lower than the operational profit distribution from SEP to M. Third, without M’s capital constraint, PVO cooperation is always achievable and given a negotiated transfer payment for this cooperation, a higher PVO cooperation level benefits M, R, SEP, consumers, and the social planner, but PVO cooperation is attainable only if its level is capped within a reasonable range under a binding capital constraint for M. Therefore, M, R, and SEP should enhance PVO cooperation to improve overall supply chain efficiency. Moreover, the transfer payment for PVO cooperation does not satisfy the equal value principle typically applicable to arm’s length transactions, as the equity exchange between M and SEP must consider their ensuing operational interactions.