Membership Plans for Sharing Economy Platforms
Abstract
Membership plans, which are ubiquitous in many industries, have recently emerged on platforms operating under the sharing economy model. Unlike traditional firms with stable, captive supply and fixed marginal costs, sharing economy platforms rely on independent service providers who self-schedule their participation. These platforms dynamically adjust consumer prices and provider wages in response to real-time demand and supply conditions, resulting in variable marginal costs. The introduction of a membership plan further alters marginal costs and revenues. We examine a platform’s strategic decision to offer a membership plan on the consumer side, the provider side, or both. Our analysis reveals a sharp contrast in the conditions under which the platform benefits from offering membership on one side versus the other. Specifically, a consumer-side-only (provider-side-only) membership plan is optimal when the expected supply (demand) potential is greater than a threshold. The primary source of profit gain from a consumer-side (provider-side) membership plan is the membership fee revenue (operational profits). The platform prefers the both-sides membership plan over no plan only when neither the expected demand potential nor the expected supply potential is too large. Introducing a membership plan on only one side harms participants on that side while benefiting those on the opposite side. Under both-sides membership plan, one side benefits at the expense of the other. Notably, both members and non-members on a given side maybeworse offfollowing the introduction of a membershipplan. Fromasocialwelfareperspective, a consumer-side-only membership plan consistently improves welfare, whereas provider-side-only and both-sides membership plans do not necessarily do so. Our findings highlight the platform’s exposure to risks arising from supply and demand fluctuations and the role of self-scheduling, by consumers and providers, in a platform’s membership plan decision.