Category Archives: Journal 3

An Argument for the Sharing Economy

I haven’t taken a taxi in about three years. In the rare occasion that I find myself needing one, my smartphone comes to the rescue. A few taps later, I’m being picked up by someone under the corporate umbrella of UberX. Such is the nature of today’s sharing economy. Since the advent of the internet, the sharing economy has been made increasingly convenient as well as cheap. Users of online platforms such as Uber who are on either side of the buy-sell agreement are matched together to facilitate transactions that would not have been possible otherwise.

Kind of like online dating, but less disastrous.

Among the most well-known of these companies are Uber and Airbnb, platforms that have used the sharing model to disrupt their respective markets, taxis and hotels. The operating idea is that people do not always use their resources at maximum capacity. Cars, for example, are left unused 95% of the time. The combined value of the unused capacity is called idling capacity. These platforms were built to capitalize on that, allowing providers to “cash in” their idling capacity by renting out their resources to people who are willing to pay. What they all do in common is give regular people a way to do business, provided they meet certain criteria. As long as you have a couple hours and a car, you can be a taxi driver. As long as you have a spare room in your house, you can be a hotel.

                      

In economic terms, the providers believe that the economic benefit from using the online platform to share their resources outweighs the opportunity cost of using those resources for themselves. In some cases, providers may see zero opportunity cost in sharing. For example, if an owner of a property knows they will have to be overseas for a couple months, then they experience no opportunity cost by using Airbnb to rent it out for a while – their house or apartment would have been sitting there, gathering dust anyways.

Another way of looking at opportunity cost is the provider’s ability to opt out of providing the service at any time. While a taxi business remains a taxi business no matter the demand for taxis, an Uber driver can choose not to work on days where they will not see business. The scales of cost have tipped to the other side – now, it is better for them to use their car and time for other activities that have more value.

Sounds fantastic. Now, the question is, what are the advantages and disadvantages of such a system?

The Bad News

All for One

The nature of these platforms ensures that each region will eventually be dominated by one platform. It’s easy to see why. It is in the best interest of the buyer to have the most sellers, and vice versa, because the number of users directly impacts how easy it is for both parties to do business. As a result, people will be more and more likely to join the largest platform, ignoring the smaller ones. In the case of Airbnb, a provider wants the market with the most customers to have the best chance of getting his property seen, while the customer wants the market with the most variety of accommodations. Intrinsically, the value of a sharing economy comes from other users.

This is known as a natural monopoly. The barrier to entry of new platforms is exceedingly high. It is very difficult for new platforms to attract enough users to even start competing. Even Lyft, a popular competitor and alternative to Uber, commands only a distant second place, with a mere 13.9 million trips against Uber’s 62 million as of July 2016.

Users of these sharing services are bound by the terms and conditions set forth when they opened the app, which is really a disguised contract. This grants the company power over its users. They can control the price as they wish. They determine what they take as a cut from each transaction. The only recourse open to users is to leave the service – but to what? If there exist no comparable services in the same area, you’re out of luck.

Law and Order

The advent of the sharing economy is a legal and regulatory nightmare, for both the government and the sharing economy. Businesses like Airbnb have expanded exponentially, moving into cities much faster than they can legislate. In some cities, incumbent organizations lobbied the government to slam the newcomer and bar it from operating, while in others, it is allowed to roam freely.

One tough question to answer regards the employment status of those who choose to use their resources to earn money on these platforms. A whole slew of issues come up. Are they considered employees or contractors? Self-employed? What if, like 19% of Uber drivers, they work full-time, counting on the sharing economy for all of their income? The verdict is all over the place on this one. In the U.K., they are employees, but only if the driver brings it up.

The Incumbent

Finally, existing traditional businesses in fields that are being introduced to the sharing economy will experience a decline. As the sharing economy expands, it will invariably draw people away from existing businesses as they provide a substitute good or service. The introduction of Uber and its subsequent expansion is correlated strongly with a decline in yellow-cab taxis in New York. Airbnb has expanded its operations by incredible amounts year over year, undoubtedly chewing a bit off of hotels’ market share. Why is this happening?

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Market share of Taxis vs. Ridesharing services in New York City.

Sharing economy businesses have very low marginal costs, and the lower cost translates into a lower price for the end consumer. After all, their major concern is developing and running a website or app. The actual operation of the business is left to their users, including all the maintenance and upkeep. Airbnb does not pay for housekeeping, and Uber does not reimburse drivers for oil changes. These are all expenses that their traditional counterparts have to account for, unlike the sharing economy.

This is the one that won’t be fixed, only softened. While some of these advantages may be eroded by legislation (especially those to do with tax), it is inevitable that the sharing economy will take customers away from existing businesses. To put it bluntly, people will lose their jobs and will have to find other means of employment.

Solutions

First, let’s take a look at what the government can do to help. The function of government in the sharing economy is to protect the interests of both types of users in the economy. They need to make sure that both providers and consumers are getting a fair deal from the sharing platform. This could come, for example, in the form of regulations that require companies in the business to disclose their pricing models in a full, true, and plain manner. That would allow both providers and consumers to make a more informed decision when choosing between platforms.

They need to also look at the benefits that some platforms enjoy over their traditional counterparts and determine if they are, by nature, unfair. Should these platforms be able to keep their tax advantages? Should they be required to treat their providers as employees? A high school economics student cannot provide the answer to all these questions. What I do want to see, though, is more consistency in the regulation. What it takes to drive for Uber in Canada is markedly different from what you need in the U.K., for example. Ideally, some kind of international agreement should provide guidelines for how these cases should generally be handled.

In order for the sharing economy to be a platform that works for the good of its users, it cannot be owned by a corporate entity beholden to profits. Enter the cooperative. The idea behind them is that the people who use the service should also own the service. Juno is an alternative to Uber that has allocated 50% of its common stock to its drivers as part of a business model that “puts drivers first.” The effect is that Juno’s drivers have a say in the company’s executive matters as a shareholder, enabling them to vote on decisions that benefit the users of the service. Makes sense, right? The ones who are concerned with the company’s matters the most should be the ones who rely on it the most.

In time, I am confident that these issues will be resolved. All that we need is a quick and intelligent government and some cooperation between humans. Simple, really.

The Good News

The Pareto argument

On the whole, the sharing economy is a way to improve efficiency. We cannot say objectively that it is perfectly efficient, that making someone better off will always make someone else worse off. However, we can easily demonstrate that it is more efficient than an economy where resources are being left idle. Consider the following:

You need a drill. You go to Home Depot and buy this drill. You use the drill for a total of one day. You put down the drill, where it sits for a few years serving dutifully as a $139 (plus tax) paperweight.

Now consider that you are one of the 100 proud owners of drill-shaped, dust-gathering paperweights in your neighborhood. This little community could clearly have been serviced using a fewer number of drills. If you had decided to split the cost of the tool with your neighbor and used it for one day each, then you would have been better off! You used less money to get the same thing – the right to use a drill for a day.

In essence, the excess of drills is inefficient. The neighborhood would become more efficient by sharing a fewer number of drills across a higher number of people.

In fact, the introduction of a sharing economy in an existing industry would induce a Pareto improvement in that industry. By connecting people who have unused resources with people who can use them, the resources have been allocated in a more efficient manner. As demonstrated using power tools, the sharing economy is capable of making someone better off without making someone else worse off.

It is a way of dealing with scarcity that is, frankly, not as novel as it sounds. One of the options we have available to us is to change the distribution of resources. In subsistence economies of the past, an egalitarian approach was always taken, where scarce resources were shared with others, out of necessity. The price was generally a debt held by the other party, a promise to do something in return later, creating what is known as a gift economy. Now, we can use the power of the internet to make these connections across countries instead of with neighbors.

Flexibility

The sharing economy is flexible, as there are low barriers to entry and exit. This means that it appeals to a wide variety of providers. Jonathan Kay, a journalist who investigated firsthand the difference between driving a taxi and an Uber, explains:

Drivers with UberX aren’t required to present themselves for formal interviews or even meet anyone from company headquarters. The registration process is online, earnings are automatically deposited…

Just about anybody can start driving for Uber and reap the rewards, which cannot be said for a taxi driver. The taxi medallion system found in many cities puts a huge barrier to entry on the business. Medallions are licenses to operate taxis, and were issued by municipal governments to place a hard limit on the number of taxis in operation. In the present day, the majority of medallions are owned by taxicab companies, and cost a pretty penny – at their peak, New York taxi medallions sold for over $1 million.

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S&D graph of taxi rides with medallions. “m” indicates price and quantity with medallions. Dashed line represents supply without medallion system.

The use of medallions to artificially eliminate competition and limit the supply of taxi services generates deadweight loss. Above some certain price where the number of willing taxi drivers equals the number of medallions, the supply becomes perfectly inelastic. In other words, people demand taxi rides that physically cannot be provided by the number of taxis on the road.

On the other hand, a sharing economy like Uber has a very elastic supply, which is driven by a dynamic pricing system. As soon as an increase in demand is detected, their system raises the price appropriately to try and find equilibrium. Uber calls this a “surge,” and drivers are notified via the app if a surging area is nearby. The overall supply of Uber drivers in that surging area is increased to meet the demand.

An Uber driver can also choose to call it a day at any point in time. If the demand drops to the point where they are waiting a long time between rides, they may elect to do something else with their time instead. A taxi driver is in that car for up to 72 hours a week whether they like it or not.

The Verdict

I like the sharing economy.

The benefits of the sharing economy are obvious and present. We enjoy the lower fares and wait times of Uber and the personalized and flexible accommodations of Airbnb. All this is possible because of the ability of the internet to connect together buyers and sellers quickly and on a large scale. By allowing people to rent out their resources while they are in disuse, the economy becomes more efficient – the same limited number of resources can now be distributed across a wider range of people. Furthermore, the providers in the sharing economy enjoy a flexibility that was not seen before. Some Uber drivers drive over 40 hours a week, some 15, some a mere 3, but they are all taking part in the sharing economy because it provides value to them.

Not to say the obstacles are negligible; we have a long way to go before we can call it anywhere close to perfect. The sharing economy has a tendency to spawn monopolies. The rules and regulations governing them are a mess because the governments are not used to dealing with a novel economy such as this. While the new economy flourishes, the old inevitably will experience hardships if they don’t keep up with the incredible growth of the likes of Uber and Airbnb.

But we can get over that. In the next decade, I am confident that these issues will be mostly resolved, while the benefits will only expand as users flock to the sharing economy. The benefits outweigh the costs.

What’s Mine is Yours… For a Price

 The Sharing Economy

Sharing_is_caring

Last summer I was the unpaid intern at a local tourism startup in Toronto. We turned regular people into tour guides for tourists across the globe. We were a part of something similar to a ‘sharing economy’, where individuals are able to rent assets owned by somebody else.

How about you? Do you own a power drill? Have you used it in the last month? How about the last 6 months? The average total usage for this expensive good is only 13 minutes! Cases like this have triggered businesses such as https://www.peerby.com/ that connect providers and consumers of shareable goods. There is a demand for greater independent income as well as a market of people willing to purchase a cheaper product, even from a stranger. But it definitely doesn’t stop at power tools. Huge platforms such as Airbnb (housing and lodging) and Uber (taxi service) are growing like crazy, easily rivaling their traditional counterparts.

VALUATION OF UBER, GENERAL MOTORS, AND FORD

Uber-GM-Ford-updated

The advantages of this emerging economy are easy to see. Not only is it easier to gain income and enter jobs with traditionally high startup costs, sharing economies add value to millions of unused assets. These popular platforms have troves of consumers benefiting from cheaper service, more competitive prices in traditional industry, and a social element in commerce! Finally, there are options for cheap temporary use of expensive goods. As ‘collaborative consumption’ becomes a bigger part of industry, everyone benefits from the positive environmental impact and economic growth.

However, as the sharing economy flourishes, drawbacks have already started to emerge.

While highly demanded, companies like Uber, AirBnB, and TaskRabbit also shift money away from traditionally secure jobs.

An unexpected downside to peer-2-peer markets is that extra low-skill work done by providers results in,

“an upward re-distribution of opportunity and earnings within the bottom 80-90%.”

Income inequality is bad enough; the sharing economy only exacerbates the problem.

Providers are also often well educated and are selling services typically provided by workers with lower education. This reduces opportunities for less skilled workers. With Airbnb, a lower demand for lodging results in fewer low-wage jobs like housekeeping, or food services. In the case of Uber, Taxi drivers are being displaced by Uber drivers.

In addition, sharing economies tend to create a network monopoly. Platforms like Amazon, or Uber require a large network of both providers and consumers to be successful. They are similar to social networks like Facebook or Twitter as they offer more utility while scaling in size themselves. Reaching critical mass is in itself a sustainable competitive advantage. New competition finds it incredibly difficult to penetrate the market.

When it gets to a full fledged network monopoly, the network is ground to a point where other platforms could compete, but it’s difficult for them to offer users the same levels of utility without offering the same size of the network effect.

In a trend leading towards networks in every industry, governments need to address the issue of network monopolies. Technology has drastically changed how clientele and businesses grow. Past regulatory policies aren’t the right way to handle the growth of network platforms like Uber and Airbnb.

Employees

What about providers on these sharing platforms, why would someone lend their assets to a stranger? The main incentive for ‘employees’ in a sharing platform is the extra income. The economic monetary benefit, even with inviting a stranger into your home or car, is greater than the opportunity cost of having the place to yourself but not getting paid.

They became a desirable option for people who lost jobs or income in the crash, and for recent college graduates who could not break into the job market.”

Many platforms like Uber, Airbnb, and Taskrabbit started after the 2008 economic crash.

In 2015 it was found that there were 3 main incentives for providers, rational people seeking as much money as possible (33%), providers focusing on the social experience (40%), and those who just needed a bit of extra cash right now (27%). Despite how the sharing economy is taking jobs, most providers need their income to afford their own homes. 62% of Airbnb hosts in NYC, 5,600 in Berlin, 53% in Barcelona, said Airbnb helped them keep their home. The extra cash goes a long way.

The downside of being a provider is the lack of job security. While these services grant great independence, by their nature they can’t guarantee consistent income. There is also risk associated with allowing customers into your home or car. Airbnb and Uber do provide 1M as standard insurance, but employees must accept the risk.

Despite the costs, I believe the sharing economy is overwhelmingly beneficial. It’s clear by the numbers and their rapid growth that these platforms solve problems plaguing legions of users. I believe the biggest controversial issue relating the sharing economy is their impact on traditional jobs.

Impact on Competitors (Focusing on effects of Uber and Airbnb)

The sharing economy threatens the job security of traditional businesses. Platforms like Airbnb and Uber gain their value by connecting and enabling an exchange between customer and provider. Because they don’t produce any of the assets or services exchanged, they have tiny overhead and variable costs. Growing their network by 100 000 users can be as simple as adding another server. The cost for Uber to create another UberX driver, the marginal cost, having already such a large network is negligible. Traditional taxis that have to pay for cab licenses, maintenance, and their cabs, have no way of competing with this kind of revenue model.

The entrance of suppliers from the sharing economy causes an increase in supply. A shift to the right of the supply curve, with a constant demand, results in a lower price but higher quantity sold. At the original price, there are only a set number of rides wanted. The additional transportation providers result in a surplus and a competitive market brings the price down. In Toronto 2015 the taxi base fare price dropped a dollar from $4.25 to $3.25. In New York, taking into account market growth, it’s expected that 35% of Uber’s rides came from purely untapped demand and 65% came from rides that would have otherwise gone to taxis.

uber-effect

Sharing platforms such as Uber are a substitute to other transit options, this includes the public transit. A study in 2016 estimated that Uber causes an average drop of 12.8% in bus rides before versus after entering a city.

Taxis are forced to charge less, however, Uber often still charges less than traditional taxis, borderline predatory pricing, and still make a profit. Due to how price is calculated, unless you’re in New York during traffic congestion, Uber is always cheaper. Flywheel (DeSoto Cab), San Francisco’s oldest taxi company sued Uber for their impossibly low prices after filing for bankruptcy. Predatory pricing is when a company sets low prices with the aim of forcing out competitors. With other suppliers removed, Uber in its future monopoly would be able to charge whatever it liked. Due to the huge start-up costs of a taxi service, it’s a difficult market to enter and leave, making it a profitable industry to monopolize.

bothtables

Flywheel claims that Uber is abusing their venture capital funding and must be losing profit on rides, Uber denies this. Instead Uber states that prices were lowered due to competition with Lyft (another ride-sharing platform), traditional taxis, and public transit. Uber’s ride-matching platform has also been shown to find more rides than traditional taxi services. This, along with their low overhead, allows them to set a smaller profit margin. Even with cheaper prices Uber drivers often make more than their taxi counterparts.

Based on 2016 Report by the National Bureau of Economic Research

chartoftheday6971faredealtaxidriversearningscompar.jpg

Fascinating enough is the difference in impact between the entrance of Airbnb on temporary housing business, compared to Uber on taxis and public transit. Uber is the biggest example of loss for traditional businesses. However, this may be because the taxi industry essentially had a monopoly over for-hire transport via city limitations on cap medallions. More competitive markets like hotel and lodging react faster to competition. Though Uber and Airbnb have multi-billion valuations, with just a 5 hour google search it’s clear Airbnb’s growth in its sector is not seen nearly as negative.

Airbnb another peer-2-peer platform, turns spare rooms or housing into temporary vacation rentals. These rentals mostly appeal to family and individual travel, leaving business class lodging virtually untouched. While growth from giants like Marriott, and Hilton still have a higher marginal cost, in 2015 they grew by 5%. This may pale compared to Airbnb’s 70% growth but hey, as investing reporter John Divine says,

This is a healthy industry.

Hotels that do not cater towards business travellers,” are forced to lower their prices, (increase in supply, constant demand), there has been an 8-10% drop in overall revenue mostly from these hotels. However in New York where Airbnb has 25% of all lodging, there was a 2.9% drop in daily rates last year, in LA where Airbnb has 12% there was a rise in 9%.

While Airbnb is undoubtedly hugely successful, the impact on hotel and lodging appears much less damaging than Uber on transport.

Toronto, NYC, and many other cities used a medallion system to restrict the number of cabs on the streets; it was an entrance into the monopoly of for-hire transport. In order to legally drive a cab, drivers would have to buy an expensive ‘medallion’. 3,000 medallions were sold at about $ 360,000 each, though most owners don’t actually drive a taxi. Instead, 78% of taxi plates are rented out from wealthy owners. The taxi medallion system is incredibly beneficial… for medallion owners at the cost of everyone else. By creating barriers to entry, taxis have become an ‘artificially scarce good’. The system sets the supply of taxis below the market’s natural equilibrium of supply and demand. Medallion owners can then charge much more than the market would normally support. For taxi drivers, this means

In San Francisco, New York, and Boston, for example, drivers must earn roughly $100 per day (not counting fuel and other incidental costs) just to cover the cost of the medallion rental and break even.” – Jason Snead Policy Analyst.

 

supply and demand taxis journal.png
Several drivers described themselves as serfs. The description fit, given that much of their income, went to licence-holders who passed their plates on to their descendants… Now his daughter was collecting rent from them… she defended her right to derive income from the licenses: ‘I don’t see that this license is any different than a store,’ she said. ‘If my father owned a store he could give it to me. How is this any different?’

In NYU and many other cities, the taxi industry had stagnated. There was no need to stay innovative. Even against the rise of Uber, the reason they lost so much of the market share was likely due, in part, to their reluctance to act.
Uber, does not need medallions for their UberX, they are a platform connecting drivers and people, they don’t own cabs. The policy regarding the medallions is outdated. Due to the system and the cost of renting them, 
cab drivers don’t make much. With the introduction of Uber, the monopoly is broken and the value of the medallion has plummeted. Though it ruins investment on the medallion, (likely a bubble in the first place), the old business model was focused on generating revenue for the city, as opposed to improving quality of service.

From where I stand, it is baffling that there are only two PR firms working for the medallion owners—and neither works in conjunction with the other.

Unlike the hospitality industry with Airbnb, the taxi industry, medallions owning companies act on their own interests, not those of the industry. Not enough money was spent on addressing their new competitor (ie. marketing, PR, lobbying for better policy).

They were not competitive enough, perhaps it’s time for that to change.

Personally, I support the abolishment of the medallion system; less regulation in both taxis and Uber would likely provide better service for both drivers and riders. This would call for a reimbursement plan for medallion owners. Another major reason Taxi drivers can’t switch to Uber, even though in many cities Uber offers better pay, are the exit costs of the taxi industry. Companies and drivers that own medallions can incur a massive debt, and as the medallion value declines selling them isn’t enough. It’s unfair, a lot of medallion investors feel like something is being stolen from them.

The city at the time promised a solid investment, and because the rise of Uber & Lyft that promise turned that sour. Instead of restricting the sharing economy I believe the right move would be to reimburse, to save Taxi companies, so they can have a fresh start. Unfortunately, from history we can see that government rarely save the common man from bad investments.

That is a specific case for the Taxi industry. In general, peer-2-peer markets can be thought of similar to automation for workers already in the industry. These platforms are threatening because of they have higher efficiency, increase the supply of low-skill workers, and tend to create a network monopoly. The pressure of competition forces existing business to become more competitive, challenging industry to find new ways of providing better service, greater safety, a lower price for customers.

Role of Government

There is also the issue with understanding providers using the platform, does Airbnb have millions of employees, contractors, or something else entirely? This definition is huge concerning tax. A great example of a legal loophole is Uber’s tax shell game. By processing international revenue in the Netherlands (Uber BV) which taxes 1% corporate revenue and sending remaining revenue to Bermuda (Uber Int. CV) which doesn’t charge corporate revenue tax, Uber utilizes a legal loophole to minimize tax. As a platform that only provides the service of connecting peers. Because there are few laws that specifically address them, it’s easier to find legal loopholes.  

My favourite example of outdated policy, however lies with Airbnb and the hospitality industry.

Existing regulations contain outdated or obsolete information such as that for hotel owners, as found in the Ontario Innkeepers Act. The act applies to hotels however almost onequarter of the regulations pertain to how an inn owner can place a lien on a customer’s horse.” Writes a study from Dalhousie University.

As sharing platforms are not responsible for provider behaviour or repairs, the focus shifts to ensuring safety and quality for consumers and providers. Big companies like Airbnb and Uber are already doing this in the forms of background checks, reviews, and records of financial transactions. As the CEO of Airbnb said in his interview on Bloomberg, they’ve been paying the same hotel occupancy tax as hotels like Hilton, and have been partnering with cities to deliver the best service possible.

We want to be regulated, to regulate Airbnb is to recognise Airbnb.

It’s clear that the government must quickly rework related laws to properly address workers, customers, safety, monopoly, and tax with sharing economy platforms. I believe the role of the government shouldn’t be to restrict new platforms, but rather work to help guarantee quality of service as these businesses scale, become more profitable, continue to satisfy consumer needs.

Summary

Ideally, government policy can work in tandem with emerging businesses to alleviate cons and maximize the benefits.

Pros

Cons

Creates jobs Pressures traditional businesses
Adds value to unused assets Requires legal rework for taxation and proper regulation
Creates more competitive markets Currently needs improve provider benefits and protection
Inspires social commerce Regulate safety for customers & providers
Positive environmental impact from reuse Puts a price on otherwise free daily sharing
Offers cheap temporary use of expensive goods Lowers demand for low-skill labour
Innovation and economic growth  Puts a price on typically free acts of sharing
Huge consumer demand  Currently no guaranteed job security

Sharing economies are certainly worth their costs.

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The Sharing Economy: It’s All Yours, And You Don’t Own A Thing

Do you have an extra power tool lying around?

Is your spare bedroom in the basement going unused?

Do you need a little spare income to pay off your second mortgage?

If you answered yes to any of the above questions, there lies an untapped market waiting for you – whether you need a little spare cash or are looking for a full-time job, there are exciting opportunities lying in wait for you. It’s a promising new sector with tremendous growth in the past 5 years, and is rapidly outpacing the expansion of traditional service industries.

We call it the sharing economy: an economic model in which individuals are able to borrow or rent assets owned by someone else.

The Airbnb you stayed at on your last vacation? One of the many moving cogs in the machinery of the sharing economy. That Uber you took to the movies the other night? It, too, was one of the many components of in this diverse peer-to-peer network. These businesses, many of which first began life less than a decade ago, have risen to incredible valuations in a very short amount of time – we’ll see this further as we analyze the growth of individual markets within the sharing economy.

Of course, with the advent of such a new and intriguing market, there are exciting opportunities and also worrisome obstacles presented. The real question is: is the sharing economy truly beneficial for us all?

Let’s find out.

Why the Sharing Economy Works

One of the reasons for the tremendous growth of the sharing economy in its short history is its incredible, unparalleled efficiency in distribution. In classical economics, efficiency in distribution refers to an economy in which the allocation of goods is able to make each person better off without making anyone worse off. The sharing economy is very efficient at providing consumers with a wide variety of goods and services at low costs. Expensive, luxury items that were once just fleeting dreams of the middle class are suddenly available at our fingertips.

Take this 2015 Mercedes Benz CLA-Class, for example, courtesy of cooperative car rental service Turo. For just $68 per day, this pristine, high-end car is yours – “all the luxurious features a car can offer” included. If you’re looking for a mountain bike to explore the great outdoors, you’d be hard pressed to find a better deal than this 2015 Masi Alare. It is just one of thousands available on bike sharing service Spinlister, and is yours for the day for the low price of $25.

Through this novel redistribution of goods, the borrower saves the cost of the purchase, instead paying a comparably negligible fee, while the renter generates income for an otherwise underused asset. The under-utilization of these assets is referred to as the idling capacity – the untapped social, economic and environmental value of an asset. Through the sharing economy, consumers are able to get the required utility from goods and services, but for a fraction of the cost. We no longer need to buy an expensive power tool, or a pricey mountain bike, for a few hours of use annually. As a result, the sharing economy is one of the most efficient distribution systems in place together, and its efficiency is responsible for two of its primary strengths: adding value to existing assets for renters, and providing more variety in goods and services for consumers.

This market also provides an economically viable method for dealing with scarcity. Economists define four primary methods of dealing with scarcity:

    • People can do without some of the things they want.
    • People can create more resources by new discoveries, more training, and better tools.
    • People can produce more through better use of resources.
    • People can redistribute goods and services so that everyone has enough.

In many ways, this is the most cost-efficient way for consumers to gain access to previously inaccessible goods and services. No more production is required, very little additional training is required – beyond simply learning the ins-and-outs of the Uber and Airbnb interfaces, and neither consumers nor providers are required to give up the things they want. The median income earned from Airbnb in New York City in 2016 was $5,474, a modest but certainly remarkable total for those looking for a bit of spare cash. Up North, Canadians – and millennials in particular – are using the service to help pay off their mortgage by renting out spare bedrooms. Renters are redistributing their assets, offering the tourism industry a novel alternative to traditional, more expensive hotel chains. Furthermore, the hours are incredibly flexible, meaning renters can supplement a primary income with additional revenue. This cements another one of the sharing economy’s greatest strengths: the ability to create new job opportunities for those in need.

Lastly, it’s worth considering the tremendously positive impact of the sharing economy on the environment. According to Nicolas Voisin, the founder of TheAssets.co, “80% of the things in our homes are used less than once a month, and self-storage has increased by 1,000% over the past three decades.” The idling capacity of many of these assets has been tapped by the sharing economy – and it seems that the environment is also reaping the benefits.

Estimates on the eco-friendliness of peer-to-peer car rental services such as ZipCar vary, but even the most conservative estimates say that “at least 5 private vehicles are replaced by each shared car”. Another study, conducted by Berkeley’s Transportation Sustainability Research Center in 2015, found that 20% of ZipCar users sold a personally owned car after joining the service, while another 20% avoided purchasing a car as a direct result of the platform.

Other studies also indicate the positive environmental impact of other sharing services such as Airbnb. A study conducted in tandem with the 2015 Paris Climate Change Conference found that if 50,000 participants at the conference had booked with Airbnb, rather than traditional hotels, they would have saved over 21,000 kWh over energy, and over 71.4 million litres in water. Remarkable statistics such as these further illustrate that the sharing economy’s phenomenal green impact should not be underestimated.

The Limits of the Sharing Economy

However, the sharing economy also presents a number of obstacles ahead for providers, consumers, and other businesses.

Consider this.

It is worth noting that for individual providers (that is, renters of a good or service), the sharing economy operates in a state of nearly perfect competition. A market of perfect competition is one that fulfills five primary criteria:

  • All firms sell an identical product.
  • All firms are price takers – they cannot control the market price of their product.
  • All firms have a relatively small market share.
  • Buyers have complete information about the product being sold and the prices charged by each firm.
  • There is freedom for firms to enter and exit the market.

Given the breadth of goods and services available through the sharing economy, the precise nature of competition varies. Peer-to-peer car rentals through ZipCar, for example, do not fall within the umbrella of ‘perfect competition’. However, many other shared services such as Uber, Lyft, and JustPark (a parking service) do categorically fit these criteria.

For one, the goods and services being offered are nearly homogeneous – while Uber does offer varying classes of ride-sharing services, from the low-cost UberX to the luxury UberBLACK, individual providers within each class have very little to differentiate their service from others. As a result, the first criteria is fulfilled. Additionally, providers are price takers and given the multitude of other providers (there are over 327,000 active drivers in the U.S.), they have a relatively small market share. All information about the services on offer are available on the website of the sharing platform, and there are minimal barriers to entry – among them, a driver’s license and some driving experience.

So why is this a bad thing for providers? Well, in a state of perfect competition, individual firms – or, in this case, providers – have a perfectly elastic demand. In the sharing economy, the demand for services is very elastic. As a result, individual providers cannot change the prices charged for their services without drastically lowering “quantity” of their service demanded – for example, an UberX driver that attempts to charge prices above the established market equilibrium price will lose riders to other drivers that maintain this price. Additionally, in the long run, drivers will tend to make very little economic profit (in a true state of perfect competition, they would make no economic profit), as the number of providers increases and the market equilibrium price lowers further. According to CBC, once payments on car ownership and gas are considered, total wages amount to approximately $8 per hour. Uber furthermore discourages tipping for drivers.

What does it all mean? Simply put, the most worrisome aspect of the sharing economy is that platforms have far too much power. As Airbnb and Uber must first contract their renters and drivers, respectively, the profits of individual providers are directly controlled by the sharing platforms. They can refuse to accept more renters or drivers in a certain area if they feel it is too saturated, thus giving them control over the supply of the entire market. Furthermore, the platforms can decide minimum or maximum prices, and can take various cuts of the profits. Uber, for example, takes a cut of 25% of the fare price, while Airbnb takes a 6-12% service fee from guests and 3% from the hosts. According to both companies’ terms of service, this fee may change in the future.

This gives the sharing platforms the power of a government body, with the ability to set prices and regulate the market as they see fit. Complicating this issue is the fact that the sharing economy tends to exist as a series of monopolies, and the most aggressively expanding platforms tend to easily establish a nearly impenetrable base in each city. In the American ride-sharing market, Uber controls an estimated 87% of the market, which looks especially poor for its primary competitor Lyft. Now that it has established control in markets such as New York City, prospective drivers looking to enter the market are given almost no other option but to provide services through Uber if they want reasonable exposure to customers. While the barriers to entry are still minimal, it does emphasize that in the sharing economy, there is simply too much power in the hands of the platforms and not enough for individual providers. There must be amendments made for the protection and benefits of providers.

The sharing economy also puts great pressure on traditional businesses. As a result of the staggering growth of peer-to-peer markets, traditional service businesses are forced to reconsider their own branding and market strategies. Many analysts now believe that Airbnb is set to “usurp Hilton Worldwide as the world’s largest hotel chain – without owning a single hotel.” After all, the growth of Airbnb in the past 5 years far eclipses that of Marriott, its nearest competitor. See the figure below. Marriott itself recently announced the launch of its workspace on demand, a sharing economy-style platform intended to compete with the likes of Airbnb in this new market.

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Visibly compounding this problem are the ill-defined regulations of licensing and taxation for these companies. This is especially prevalent in the ongoing legal battles between Uber and municipal taxi services. While taxi drivers must pay annually for the business permit, plus application fees, they must also have three sets of insurance: total liability, property damage, and personal injury assurance. Uber drivers, meanwhile, are covered by the company’s $1 million per car policy. Taxi drivers must pay municipal governments for inspection prior to service on a regular basis, while Uber vehicles must only be inspected once prior to service as per the terms of service. The drivers aren’t even required to go through job interviews – registration is done online only. Note that in most cases across North America, Uber driver regulations are managed by the company, rather than the government, given its novelty. As a result, Uber easily siphons away the typical customer market of these traditional businesses.

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Continually declining taxi rides in favour of ride-sharing services illustrate the depth of this issue and the impending need for a crackdown by government bodies. Certainly, Uber offers an exciting alternative to traditional taxi services, but it is important for consumers and employees of both taxis and ride-sharing platforms that there are consistent standards in place.

Co-Operatives, Unionized Sharing, and The Government

Under the current market structure, individual contracted providers operating under the umbrellas of larger platforms have very little say. This is partially due to the inherent nature of the sharing economy – being a market of almost perfect competition – but also due to the monopolistic tendencies of the platforms with aggressive management and marketing. As discussed above, these firms have incredible power over the marketing and distribution of the entire market. Individual renters and drivers can’t pack up and leave, because the market exposure is already dominated by the big firms; you can’t try to rent your goods elsewhere and expect the same demand due to this lack of exposure.

So, what can be done to improve the sharing economy?

#1) Cooperative sharing

One novel idea to combat the power of these platforms is “platform cooperativism.” The transition to a cooperatively owned peer-to-peer network has been pioneered by the Transunion Car Service in Newark, New Jersey. The service, which bears many similarities to a traditional taxi service, runs 24/7 and uses a mobile application similar to Uber to facilitate customer-friendly transactions. Passengers are able to pay wirelessly, the barriers to entry in the service are lower than those of traditional taxi services, and – most strikingly – it is owned entirely by a union.

The TCS combines many of the strengths of peer-to-peer networks with those of more traditional yellow taxi lines – the convenience of the former, with the regulation and worker-friendliness of the later. It is an important step forward, and hopefully will give rise to further publicly-owned sharing services to combat Uber and Airbnb.

#2) Government regulation

As discussed previously, there are a number of lax regulations in place for Uber and Airbnb, a vast majority of which are far less restrictive than those in place for traditional transportation and rental services.

One of the lost intriguing and damaging examples of this is Uber’s ability to evade taxes outside of the United States. Through a complicated network of subsidiaries and headquarters based in tax-exempt locations, a vast majority of Uber’s international revenue is not taxed by local governments, nor the US. Uber’s $66 billion valuation is certainly impressive, especially since the company has remained private since launch, but a majority of its income isn’t taxable in its home country.

How should government bodies rectify this problem?

First, the government’s role in the sharing economy should be to promote the interests of individual providers and consumers beyond those of the wealthy network platforms that serve them. It should work to ensure providers have more say in the market price than they currently do, and should place limitations on the service fees charged by the platforms to guarantee the integrity of the industry. The primary goal of the government should be to remove the sharing economy (for transportation services, anyways) from a state of near-perfect competition, so that riders can differentiate themselves on a non-price basis in clear, distinguishable ways without unfair regulations of the platforms.

Secondly, the federal government should more strictly define the taxability of these platforms, and close tax loopholes that allow these businesses to leave large amounts of revenue unchecked. Below-cost and near below-cost pricing should be closely monitored so that traditional businesses are not driven out of the market. The playing field should be levelled, and more even regulations on sharing services will help to balance the needs of consumers and employers both in the sharing economy and in traditional markets.

Conclusions

The sharing economy presents a multitude of exciting opportunities and frustrating obstacles for today’s tech-savvy world. Among its strengths are its ability to provide untapped value to renters and new (cheap!) goods and services to consumers, create job opportunities, and positively impact the environment. Meanwhile, in its current state, there is also far too much power given to the platforms, which tend to be monopolistic, it puts great pressure on traditional businesses, and there are ill-defined regulations for taxation and licensing.

Yet these issues can be alleviated by intelligent government intervention and regulation, and by the promotion of public, worker-owned sharing services that provide quality service and important tools for employees.
Ultimately, the benefits of the sharing economy truly do outweigh the costs, and with the aforementioned amendments to the system in place, the possibilities for sharing are boundless.

The Sharing Economy – Worth it!

What exactly is a sharing economy? By definition on dictionary.com, it’s “a system in which people rent, borrow, or share commodities, services, and resources owned by individuals, usually with the aid of online technology, in an effort to save money, cut costs, and reduce waste.”

The sharing economy makes it possible to hail a private taxi with a single tap of my fingers, I can even book a residence for myself halfway around the world with but a few clicks; the sharing economy provides a quick and easy way to get what I want.

But even with the convenience it offers us, is it really worth it?

Let’s begin by looking at what the sharing economy has to offer us:

    • Service providers can make money off of their underused assets. Don’t travel much but have a car just sitting in your lot? Not a problem, the guy from Australia just came over for a visit and needs a car for a few days, and he’s willing to pay! 
    • Even the renters are able to save money! If I were to go vacation in Venice, needing to travel is a must. If I could just rent a car from a fellow there, not only would it be cheaper than buying a car for my short stay, but also cheaper than renting from a professional place.
    • We can save the environment! By utilising excess capacity, there is less demand resulting in a reduced resource requirement.
    • Heck, other than the above mentioned economic incentives, there is so much more to gain socially.  “If you rent a room from someone on a hosting site like Airbnb next time you travel, you have a chance to meet someone new and get recommendations from a local.”

The sharing economy is not a source of full-time employment. In fact, the vast majority of Uber drivers work less than 30 hours a week, with 66% saying they have no set hours. Further, the average Airbnb host rents out her property for 33 nights a year. The peer-to-peer transaction of the sharing economy has made it a great source for supplementary employment.

The sharing economy, regardless of how non-capitalistic it sounds, still follows the basic rules of economics. There must be a high enough demand for a product or service that is provided before it can become a self-sustaining sharing ecosystem.

Take Uber, for example, the service they provide already existed in the form of public transport and taxi’s, yet they have become so popular overnight. To the average person without economic insight, this might be preposterous, what makes them so much better that people prefer them over the taxi service?

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Well, it’s simple, taxi services are capped per city, meaning there are only so many taxies in each city at any time, this controlled supply can often not keep up with fluctuating demand, resulting in higher taxi prices. Uber, on the other hand, has no such limit making it so the prices they offer are much lower than what taxi’s do. The graph below economically describes the taxi situation. As the supply is constant while the demand shifts, there is an increase in the price of the service.journal 1

With such a simple way of saving money, why not? “Once you go Uber, you never go back.” I sure as hell didn’t once look back after switching over, and I’m pretty sure any wallet worrying fellow citizen will do the same!

In fact, when peer-to-peer platforms and markets are allowed to compete on equal footing with professional capitalist firms, it results in a less expensive life for us consumers.

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This graph may only be about taxi and Uber, but it gives us a perspective on how all sharing platforms gain their popularity – easy and price.

As consumers, the sharing economy seems more and more appealing with every point, but I want to know who else benefits?

  • Consumer’s benefit with a tonne of new job options and cheaper products and services. Renting becomes so much easier. 
  • Service provider’s benefit by earning money off of unused assets.
  • The general public benefits as there are new ways to make money in this economy and not just through jobs. Renting things out and saving on taxes being a few. Many do not have the capital needed to start a new business, but by renting out a few cars through the sharing economy, it’s the start of something big!
  • Small businesses benefit by procuring extra cash and saving money by renting off unused equipment and space.

In fact, business experts such as Eric Wagner cite cash flow problems to be the main reasons that 80 percent of small businesses fail. Survival for a small business is based on cash flow, and making use of unused assets to supplement cash flow makes the sharing economy extremely beneficial to them.

But even with all these wonderful sounding arguments, there must be something disadvantageous about it right? If it was flawless, everyone would partake in it! Let’s look at a few of its disadvantages:

  • Loss of tax revenue for the city or country. Platforms such as Uber and Airbnb sound wonderful on paper, but they are also largely based on avoiding regulations. Airbnb customers often do not pay their share of taxes, and other such services that lend out power tools, dresses and the like are also loosely regulated, resulting in millions of tax dollars going unpaid. In fact, several countries and cities have tried to fight sharing economy platforms such as Uber and Airbnb from coming into their lands.
  • Safety is another concern. Airbnb may allow someone to rent out a room in someone else’s house, but without proper regulation, how safe is it exactly? Hotels and professional companies are highly regulated and provide a safe environment, but in a sharing economy, everything is done by the people with no proper supervision. Peer-to-peer doesn’t sound so good now does it?
  • Nuisance. Now this applies mostly to services such as renting a place to stay. Neighbours have a right to not feel like they are living next to a hotel, in fact, that is why many cities have zoning restrictions!

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Airbnb provides people with a way to avoid taxes and regulations, and can even be said to not be a net plus to the society. The sharing economy would make others worse off by having to carry the additional burden of taxes or being forced to live next to a residence that seems like a hotel with a stream of noisy visitors.

The sharing economy can be unfair to people who work in it by taking away benefits such as leaves, health care and bonuses that full-time employees enjoy. The sharing economy and platforms that enable it greatly harm businesses that compete with them.

Taxi’s in countless cities become less and less attractive as Uber becomes prevalent. What will happen to those hundreds and thousands of taxi drivers and all those in the industry now? What about those small motels that made a living off of visitors that now go to others because of Airbnb?

In the city of LA alone, the number of taxi trips arranged in advance has dropped by 42% and a total number of trips have fallen by 30% since the start of Uber and other such platforms. What of all those taxi drivers that made their living like that? What if they have no other skills to make money, what type of situation would that leave them in? The graph below shows the steady fall in taxi use per day in New York City while the use of peer-to-peer platforms increases.

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HVS estimated that hotels lose approximately $450 million in direct revenues per year to Airbnb. Between September 2014 and August 2015, 480,000 hotel room nights were reserved while over 2.8 million room nights were booked on Airbnb. This disparity is expected to increase next year. Clearly, the ‘sharing’ site Airbnb has caused a diminish in the demand for traditional hotels and caused many to lose their livelihoods.

Even the government loses out on this. Private transactions cannot be tracked, often resulting in no taxes being paid. With the decreased revenue, not only the government suffers, but so do we as the citizens.

Furthermore, due to the nature of the sharing economy, there is very little to negligible government involvement. As I have mentioned before, the sharing economy is peer-to-peer. A transaction between two people not controlled or regulated by the government or an appropriate authority. This results in many cases of scams and frauds. With no protection, the buyer can often end up scammed with inferior merchandise with no way out. Even service providers can be scammed by providing hours of hard work after which the client is nowhere to be found.  

These points put everything in perspective, finally, we can see that the sharing economy is not all sunshine and rainbows. There are a great many costs and disadvantages involved that are hidden behind the veneer or helping each other and ‘caring’ for each other.

With all this, it begs the question: is the sharing economy really worth it?

I still think it is! Sure there might be safety risks, but such services are becoming more and more looked into, regulations may be easy to avoid but with a little bit of precaution and prior research, it is possible to avoid the pitfalls and dangers. A quick look at the comments and a search of the neighbourhood can solve this problem!

The government might be losing possible revenue, but this money goes towards creating countless new jobs, which in turn will stimulate the economy, creating a much larger benefit. Furthermore, although it may be difficult for competitors of the system, the sharing economy greatly benefits us consumers by saving us a great amount of money. The saved money can be spent elsewhere, a few tens of dollars saved on a hotel room can be spent at a nice restaurant instead. This way the sharing economy is not a hindrance to business, but a supplement instead.

Furthermore, we acknowledge that the sharing economy is not perfectly safe, but that’s what peer-to-peer is all about! There is a chance for a scam or fraud, but with today’s technology and the system around peer-to-peer platforms, there is often little to worry about. Most things exchanged are often for renting only always, any losses incurred are small.

With so much to offer and little to stand in the way, I think that the benefits of the sharing economy far outweigh the costs, making it a greatly valuable path for the future.

Efficiency increases in the sharing economy as jobs increase, excess costs decrease and everyone gets what they want while getting a chance to help others as well.

Maybe we can all come to ‘share’ in the sharing economy!

The Sharing Economy Explosion

In recent times, there have been an increasing amount of rapidly growing businesses that use a peer to peer business model. This business model involves business transactions between individual producers and consumers to satisfy a need rather than a larger company. In this blog post, I will analyze why startups such as AirBnB and Uber are so wildly successful, as well as a few of the challenges that they face.

The Advantages:

From my personal research, I have discovered that the success of the shared economy can be derived from a few key advantages over other business models. With this business model, services  are uniquely personal,  reasonably priced and extremely convenient. Rather than having giant companies that dominate a business sector, the shared economy allows for many individuals to collaborate and form a business. For example, if you decide to become an Uber driver, you can become a easily become a micro-entrepreneur without any large regulation barriers in your way.

The rental economy maximizes the use of a given resource, making use of unused potential for usefulness. 

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Applying this same idea to conventional goods and services like hotels through AirBnB and car rides through Uber proves to be an ideal solution for many people. It makes use of a preexisting, under-exploited asset and uses it to provide an alternative source of income, especially to the unemployed.

For example, Jamie Wong, co-founder of Vayable.com said,

“I moved out of my apartment in central San Francisco, rented a cheaper annex in a friend’s home, and ‘airbnb-ed’ my apartment for $200 a night and earned about $20,000 in a year. It enabled me to bootstrap my start-up. Airbnb was our first round of funding!”

This extra money has positively impacted the lives of many.

This cycle of opening up excess capacity, INCs building platforms for participation, and connecting billions of diverse Peers to create and collaborate together, is the path to abundance.”– Robin Wright: Cofounder of Zipcar

The golden key that enables all of these micro-entrepreneurs to be successful is the platform that connects willing providers to a large accessible market. For example, AirBnB gives individual users the ability to rent and profit themselves. A large number of both consumers and producers proves to be an advantage because it creates an abundance of opportunities. For example Uber has 40 million monthly riders as of 2016.

Transitioning to the collaborative economy represents an emotional change from the traditional capital market. The capitalist mantra is that every action is completed out of self interest. If you buy fries at Mcdonalds it is highly unlikely that you will share these fries with a stranger, even if you are too full to eat them all. In fact, you will likely throw out these extra french fries because it is weird to ask a stranger if they want your extra fries. The shared economy will maximize the use of these uneaten fries and allow you to sell these unused assets.

The Disadvantages and Challenges

The biggest disadvantage of using a shared economy are the difficulties associated with managing a large market where both the producer and consumer may be untrustworthy: a logistical nightmare.

For example, a disruptive and rude passenger can threaten the safety of the driver. Take a look at this video of a calm uber driver and a passenger released on April 4, 2017. I must caution you that they have naughty mouths. The passenger clearly offended and disrespected the driver, which led to an unpleasant experience. Another problem arises if the driver or passenger does not show up. However, these problems are ameliorated by a cancellation fee and a ranking system as explained in this video.

One of the problems of using Uber is that there is falling pay for Uber drivers. Uber takes 20% cut for Uber and a $1.50 charge for a safe rides fee. Here are the rates that the passenger has to pay for an UberX in Toronto as of April 2017.

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Rachel Holt, Head of Uber Canada & US Business explains, We’ve underinvested in the driver experience,”

The problem here is that the users of Uber have very little control over the prices set. They have to agree on a fixed price whether they like it or not in order to use the service. This is a problem for drivers who want more pay.

Section on Monopolies:

Under the current circumstances, shared economy markets tend to favor large monopolistic platforms which divide and conquer as a business strategy. For example with Uber and Lyft, Uber is much larger, with a 87% market share.  The reason behind this is because consumers would rather have access to a larger market, and do not have time to compare 2 ride sharing services, so they will just pick Uber and stick with it.  Uber being a behemoth is less than ideal for consumers and producers because as individuals, they have very little democratic power to change regulations. For example, Uber has a non-negotiable user agreement that is difficult to change. In order to improve this situation for consumers in the future, companies should provide a better way for individuals to vote and change certain policies.

Although I’ve just stated that it is difficult to change the policies and regulations for platforms, I would like to offer another perspective, that proves that this disadvantage of adopting a shared economy is not as bad as it seems. It turns out that companies indeed do change their policies to protect its users.  Now gather around and listen to a story of why AirBnB implemented insurance policies. While most AirBnb gigs are trouble free, there are some nightmare cases. In one case someone’s house was ransacked and the victim made a blog post that went viral. This is an example of how sketchy consumers who use this platform can harm the renter.

“They smashed a hole through a locked closet door, and found the passport, cash, credit card and grandmother’s jewelry I had hidden inside. They took my camera, my iPod, an old laptop, and my external backup drive filled with photos, journals… my entire life.”, explained a blogger named EJ

This was fairly bad for AirBnB’s public reputation, so they responded by updating their policies to add a 50,000 dollar insurance for the renter. Read more here. Later on, they developed a 1,000,000 dollar guaranteed insurance policy, to ensure that AirBnB renters will be protected.

Earlier, I explained an opinion on how behemoth monopolistic platforms provide little power for consumers to provide input, however this is an example of how the company responded well.

Therefore, while the regulation of the shared economy is currently in a grey area, as these types of businesses evolve, an improvement would be to develop a system that better addresses the individual needs of its users.

The Role of the Government in the Shared Economy

According to a report released in Ontario about how to regulate a sharing economy, it can be difficult to regulate because of challenges to consumer safety and security. Lack of regulation from these services could result in bad service quality and lack of protection for the consumers. Additionally, a lack of health and safety regulations could put consumers and providers at risk.

“It’s now about what fundamentals we can put into place for this rapidly growing sector of the economy, and the appropriate role for the government to play,”Karl Baldauf, vice-president of policy and government relations at the Ontario Chamber of Commerce

After a meeting with government workers and decision makers for the City of Toronto, they released a summary document explaining what needs to be done. There must be a distinction between a business owner and a micro-entrepreneur so that they can both be taxed fairly. It seems that the government is still working on the kinks of this new type of business.

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Applying economic principles to Uber

We can now apply economic theories learned thus far to this idea of the shared economy. By maximizing resources, like using and Uber car, or a AirBnB, there is an increase in supply, as there are additional sources where a service can be provided, the supply curve is shifted to the right. As a result, the equilibrium shifts to a point where the quantity demanded is greater and the price is cheaper. This is excellent news for consumers, because fast and cheap car rides are not only more available, they are also cheaper. Clear evidence of this is supported by Oxford alumni Carl Benedikt Frey  who published a paper explaining the impacts that Uber has had on the taxi industry. There has been a fall in income of about 10% for salaried drivers, as well as a 50% rise in the number of self employed drivers in the city. As for the price, a Toronto Star article explained an experiment done where an Uber and a taxi were used to both go from point A to point B. The Beck Taxi costed $67.50 and took 43:31 minutes whereas the Uber took $41.67 and took 31.58 minutes. Of course, the scope of this experiment was small, however it does shed some truth about how Ubers can be cheaper than taxis.

The Impact on Competitors of the Sharing Economy Business

Uber has been a subject of controversy among many Taxi companies around the world because of claims that they bypass many licensing and safety laws that allows for unfair competition. For example, on June 11, 2014 there was a large protest in many major European cities where they blocked off many roads. They were against Uber drivers, for the aforementioned reasons, as well as the fact that Uber drivers did not have to pay regulation fees and that they were threatening the livelihood of taxi drivers.

Although I’m neither a taxi or Uber driver, to tackle this issue, I would have Uber consume all taxi industries around the world. This may sound over simplistic, but in terms of maximizing people’s time and developing an efficiency with a decreased idle to driving time ratio, Uber’s complex sorting algorithm applied to an even greater market will be the least wasteful use of people’s resources. I believe that this will very likely happen in the future, because it is difficult to compete with Uber’s massive accessibility and efficiency.

 

Conclusion

After analyzing the logistics, advantages, disadvantages and effects on competing companies, I believe that the sharing economy can benefit both producers and consumers. Producers are able to find new uses for their pre existing assets and find a new source of income. Consumers will have access to a relatively cheap and uniquely personal service or good. Both sides of this peer to peer business will benefit from a large platform that allows for convenient market access, makes communication easy and sets up a reasonably well structured system where they can perform fast transactions. The vast potential created from these new opportunities are well worth the small risk of potentially having a bad customer or producer experience. Tax, policies and regulations still have to be more thoroughly developed by governments to better create a standard to understand and regulate this sharing economy. This is because it is a game changing model that is likely to be used more frequently in the future. The next few years will prove to be exciting as we see new peer to peer market platforms introduced into our lives.

Written by: Michael Lin