Two-Sided Sharing Platforms: Sell Upfront Subscriptions or Not?

Abstract

Two-sided sharing platforms match independent third-party service providers (i.e., supply) to consumers (i.e., demand). Unlike firms that employ their own stable supply, a two-sided sharing platform only has an indirect control over the supply side through wage, and its marginal service cost depends on the number of consumers who need the service, i.e., demand potential, and the number of providers who are available to serve, i.e., supply potential. Furthermore, demand potential and supply potential change over a relatively short period, creating variability on the demand side as well as the supply side. Offering a subscription option with an upfront fee is a widely adopted firm strategy to smooth out the demand-side variability. However, whether this strategy is profitable for a two-sided sharing platform is unclear, although some platforms have been experimenting with subscription models. In this paper, we examine a monopolistic sharing platform’s decision on offering a subscription option, when it faces consumers/providers with uncertain valuation/cost and heterogeneous need frequencies. We find that the platform’s incentive to offer a subscription option hinges on the provider-to-consumer coverage ratio, defined as the ratio of the number of providers to the number of consumers, in the market: (i) when the ratio is low, offering a subscription option is sub optimal; (ii) when the ratio moderate, offering a subscription option that would induce only frequent consumers to subscribe (mixed subscription) is optimal; (iii) when the ratio is high, offering a subscription option that would induce all consumers to subscribe (pure subscription) is optimal. We also identify the effects of demand variability and supply variability on the platform’s incentive to offer the subscription option.