Scaling Sharing Platforms with Supply Constraints with Lease-to-Earn Contracts

Abstract

Many asset-sharing platforms face significant supply shortages. These shortages can be attributed to low asset-ownership rates in developing markets, high sharing costs due to regulations, or competition from other sharing platforms. Recently, some platforms have introduced lease-to-earn contracts to increase their supply base. Under a lease-to-earn contract, any individual can lease an asset from the platform for a fixed recurring fee. These lessees can then share the asset on the platform when they are not using it. When they share the asset, lessees, like asset owners, receive a share of the revenue earned by the asset. We study these contracts using a sequential game-theoretic model in which the platform chooses the recurring fixed fee and revenue share. Asset owners choose whether to join the platform and share their assets, while all other individuals decide whether to lease an asset from the platform and share it. Our main result is the existence of dormant lessees, who use the asset for personal purposes at all times and never share it on the platform. Moreover, we find that the existence of dormant lessees is optimal even when the platform charges lessees a fee for personal use of the asset. We find empirical validation of our main result using data from the largest car-sharing platform in India, which offers lease-to-earn contracts in approximately 50 cities. We observe that 5–15% of lessees are dormant.