CORE Brown Bag Seminar

Matteo Bulgarelli

The Environmental Implications of Renting the Runway

Abstract:

I study the impact on clothing production of subscription-based leasing arrangements: I adopt a stylized setup that features two competitive fringes of retailers and an Access Based Service Provider (ABSP) that offers a two-period rental contract; each fringe supplies a horizontally differentiated good, and the subscription to the ABSP gives access to both products. Consumers display a taste for variety: their gross surplus from the purchase of both products is superadditive. The green credential of the ABSP stems from its efficiency in serving the fraction of users that buys both items; with only one piece per subscriber, the ABSP can provide two distinct outfits, swapping items among its clients between periods. I show that the entrance of the ABSP reduces total production if and only if users exhibit a sufficiently strong preference for variety and if the unit production costs are low enough. Subsequently, I analyze the competitive interaction between the ABSP and the retail side in a Stackelberg game: a retailer that sells both products holds a first-mover advantage against an ABSP. In this set-up, if the demand side is characterized by very low acceptance of rental vis-à-vis ownership, then entrance necessarily implies a larger production volume.