Scaling sharing platforms with supply constraints with lease-to-earn contracts

In a shared economy, users list their assets on the platform for extra earnings. However, in emerging markets, there may not be enough individuals who are willing to share assets. Some platforms nowadays offer asset financing options to ensure enough supply, wherein individuals can own the asset temporarily or permanently by committing to a recurring fee. These users can then list the asset on the platform and earn a share in the revenue. We study such contracts using a sequential game-theoretic model where the platform chooses the recurring fixed fee and revenue share. The individuals then decide to subscribe or not using rational expectations on their future payoffs. The platform can choose a contract with a high subscription fee and high revenue share or one with a low subscription fee and low revenue share. We study conditions under which the platform prefers to choose the former contract over the latter. Specifically, we study the effect of platform prices, the asset's market price, and the demand for the shared asset on the contract design. Our main result is the existence of a budget limit above which the platform will not exhaust its budget to get more subscribers. Interestingly, depending on the market conditions, this budget limit can be lower than that required to get subscribers to satisfy low demand levels. We further find that it is optimal for the platform to have subscribers who list their assets infrequently, even when the platform is supply constrained. We use the data from a car rental platform in India that offers such subscription contracts to validate our results and support our modeling assumptions. Finally, we also compare the profits of a platform offering subscription contracts against a centralized platform and study if such contracts are always preferable to scale.