On-Demand, Long-Term, or Hybrid? An Economic Analysis of Optimal Rental Models on Sharing Platforms

Abstract

This study examines three rental models—long-term, on-demand, and hybrid—in the sharing economy and evaluates their impacts on social welfare and consumer surplus. Our analysis reveals the significance of consumers’ setup and transaction costs in determining the optimal rental-model for platforms. We find that the relative setup cost and the relative transaction cost between owners and renters play a crucial role in shaping the equilibrium market price and optimality of the three rental models, whereas the total costs determine the equilibrium transaction volume and sustainability of the three models, with high costs posing barriers to the viability of on-demand and hybrid models. In practice, platforms can maximize consumer surplus by selecting an optimal rental model that narrows the gap in setup costs between renters and owners. Policymakers should implement favorable policies or subsidies to balance consumers’ participation incentives on both sides of the market, leading to mutually beneficial social outcomes.