Car Sharing Economy: Interaction of Business Model Choice and Product Line Design

Car sharing economy: the introduction of car sharing programs.
Several auto manufacturers have recently introduced car sharing programs. Although the structure of most programs is the same, there is no clear dominant strategy for the type of vehicles that should be provided through car sharing. In this paper, published on the Journal of Manufacturing and Service Operations Management researchers Bellos (School of Business, George Mason University, Fairfax, Virginia), Ferguson (Moore School of Business, University of South Carolina, Columbia, South Carolina) and Beril Toktay (Scheller College of Business, Georgia Institute of Technology, Atlanta, Georgia)  consider an original equipment manufacturer (OEM) that contemplates car sharing and designs its product line by accounting for the trade-off between driving performance and fuel efficiency under CAFE standards.
The car sharing economy: customers’ options.
Customers have different valuations of driving performance and decide whether to buy, join car sharing or rely on their outside options. Researchers find that the original equipment manufacturer increases the fuel efficiency of the vehicles it provides through car sharing. This higher efficiency enables the original equipment manufacturer (OEM) to charge a higher selling price to the higher end of the market, thus increasing its profit. This is especially beneficial to higher-end original equipment manufacturers that face greater cannibalization and can explain why Daimler and BMW have been particularly active in introducing car sharing. Offering car sharing is not always environmentally beneficial. Even when it is, the researchers find that doing so may reduce the original equipment manufacturers Corporate Average Fuel Economy (CAFE) level. In such cases, incentive multipliers should be granted for each shared car. Finally, if anticipating aggressive CAFE standards, original equipment manufacturers may introduce car sharing to better absorb the increase in the production cost.
We believe the paper contributes positively to the big discussion about the important of creating programs aimed at reducing the corporate average fuel economy level.
Read the full paper at: http://pubsonline.informs.org/doi/10.1287/msom.2016.0605