The Rise of The Sharing Economy

Updated: Jan 23

Since the inception of companies like Uber and Air B and B, normal hardworking everyday people have been putting their cars and property to use to gain an economic advantage while providing a valuable service to consumers. Before we get ahead of ourselves though, what exactly is the “sharing economy” and how do the previously mentioned companies fit into this sphere?

The sharing economy is defined as “a peer-to-peer (P2P) based activity of acquiring, providing or sharing access to goods and services that are facilitated by a community based on-line platform.” (Investopedia). More simply, the sharing economy allows both the consumer/user and the producer/provider of goods and services to communicate directly with each other and it eliminates the need for a middleman or facilitator. Let’s use Uber and Airbnb to explain this practically. In the past when a person wanted a car ride from one destination to another, that person needed to hail a ride from a taxi cab which was owned by a cab company, but today you can hail a ride from an individual that owns her or his car and it can all be done by the simple push of a button on your telephone. The owner of the car is not controlled by a company but is rather contracted to drive for a split in the fare price between Uber and herself/himself. Similarly, Air B and B does the same with lodging. Now, instead of booking a room at a hotel, you can stay at someone’s house, condo, apartment, etc.

Why is all this so incredibly significant? It is incredibly significant because technology is moving at an extremely rapid pace, and it is quickly replacing more archaic modes of operation which is having an impact on many aspects of life. First, there is the blowback by those still heavily invested in a way of life that is used to doing things without the sharing economy. For example, taxi cab companies and workers across the country and the world are in an uproar because they are losing business every day to companies like Uber. They are effectively lobbying for bans in some countries (ie: France), and ineffectively lobbying in others (ie: The United States). Second, politicians and public officials are very slow and confused about how to move forward with regulating this industry because it is completely revolutionizing the way things are done. We’ve seen in cities across the U.S. (ie: Fort Lauderdale) bans that have been instituted against companies like Uber causing public outcry and in turn, causing the ban to be quickly repealed. Third, the surplus and affordability of for-hire car travel have not only helped people go from one place to another more safely, but it has also helped curb drunk driving incidents in densely populated cities.

Lastly, and probably most importantly, the sharing economy is reigniting free-market enterprise. Why is this? As it relates to Uber, governments have issued medallions on a limited basis to a limited set of people thereby controlling the supply of cabs in the cities, but again, before we get ahead of ourselves, what exactly is a medallion? Simply stated, a medallion is a physical license which allows a cab to operate in the city in accordance with state law. In the past, not having a medallion meant that you could not operate a cab in the city, and to acquire one, you had to either: (1) buy a medallion from someone who already owned one, or (2) you had to go through a lengthy and waitlisted process because the government which issued these medallions restricted the supply.

What was the effect of supply restriction? Supply restriction by governments created inflated prices because there was a demand for rides that far exceeded the supply of taxis/drivers. Generally, under free-market principles, economies and individual actors within these economies seek to balance the demand by increasing the supply which in turn drives down prices, but because people were not free to enter the market, the government was able to hold the industry and the market hostage, and only grant those it wanted to, a license, which then, in turn, extorted the customers in need. The monopolistic cab industry did not need to serve everyone as a free market would, rather it only needed to serve those willing to pay a premium for rides because the demand was always there.

How has the sharing economy changed this? It has made monopolistic governance of certain markets and industries increasingly hard because the technology is outpacing the government's ability to understand, regulate and clamp down on these new technologies. This, in turn, is creating a sort of free-market re-emergence in these once highly regulated industries, and as a result, it is driving down prices once again for the consumer and is creating plenty of jobs in the process. (It is important to note that Uber/ridesharing is an example of the effects that the sharing economy is having on the market as a whole, but it is not the only industry responsible for breaking down these highly regulated barriers.)

What’s next for the sharing economy? While it is hard to theorize about (1) where the sharing economy is going to take us, (2) what new and exciting innovations will be brought to us and (3) how legislators will react to it, it appears that companies like Uber and Air B and B are just the beginning of this peer-to-peer technology. Soon people may be sharing grills, excess food, workout equipment, jet skis, motorcycles and anything you can think of. Does this seem far-fetched to you? …..Ten years ago Uber was just as far-fetched.

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