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

This study analyzes three rental models in the sharing economy—long-term, on-demand, and hybrid—and their effects on social welfare, consumer surplus, and platform profit. It finds that consumers' setup and transaction costs critically influence which rental models are viable and optimal for platforms, with high total costs limiting the sustainability of on-demand and hybrid models. The platform's optimal rental model depends on the relative setup and transaction costs between owners and renters: the on-demand model is favored when owners' setup costs are significantly higher, the long-term model when owners' setup costs are significantly lower and renters' costs are low, and the hybrid model when setup costs are comparable or renters' costs are high. While the hybrid and long-term models often maximize social welfare and consumer surplus, the on-demand model is never socially optimal. The study suggests policymakers should consider subsidies or regulations to balance participation incentives and promote socially beneficial outcomes in sharing platforms.