Product-sharing market entry strategy for a socially responsible firm

With the rapid growth of the sharing economy, firms are increasingly entering the product-sharing market to generate new revenue streams. While the entry strategy for profit-maximising firms is widely studied, the entry strategy for socially responsible firms, those that concern their own profits as well as consumer surplus, is not well understood. Therefore, this study develops a game theoretical model to examine the sharing market entry strategy for a socially responsible firm. Our results show that a socially responsible firm prefers to enter the sharing market only when the marginal production cost is low, and the firm’s concern for consumer surplus always lowers its incentive to enter the sharing market. While the firm’s entry into the sharing market allows more customers to access and derive value from the product, it may reduce consumer surplus because of the firm’s market segmentation and price discrimination. In extended models, we further explore the firm’s entry strategy under two corporate social responsibility (CSR) incentives: “warm-glow” effect and government subsidy, which encourage the firm to take more CSR. We find that the firm’s incentive to enter the sharing market is enhanced if the “warm-glow” effect is present, but weakened under government subsidy.
The rapidly growing sharing economy has offered firms more options to provide their products to customers. Nowadays, firms can enter the product-sharing market and provide their products as sharing services to customers. This study provides actionable recommendations for managers in socially responsible firms (e.g., commercial nonprofits, certified B corporations, and consumer cooperatives) regarding the conditions under which they should enter the product-sharing market. The analytical framework benefits managers in understanding how firms’ social missions impact their strategic business decisions. This study clarifies the relationships among firms’ profits, consumer surplus, and firms’ CSR levels after they enter the sharing market, which helps practitioners better balance their social missions with financial sustainability.