Debating the Role of Public Policy in Regulating the Sharing Economy

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The sharing economy has grown so swiftly in recent years that governments around the world have struggled to keep tabs on int. PricewaterhouseCoopers estimates that the five biggest sectors in the category generated a whopping $15 billion in 2013, and that number will grow to $335 billion by 2025. As the breakneck growth continues, what is the responsibility of governments over these increasingly pervasive companies? While there is little agreement on the answer, both sides of the argument raise valid concerns about where the sharing economy is headed in the coming years.

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One the One Hand: Regulation

The concept of the sharing economy is peer-to-peer platforms enabling transactions between suppliers, often individuals and smaller entities, and consumers. The projected market value growth in 2015 was $335 billion, a massive leap from 2013’s market value of $15 billion. Potential growth particularly exists among the hospitality, automotive, finance, staffing, and media streaming businesses.

The sharing economy’s two major players are Airbnb and Uber. Airbnb is an online marketplace for individual sellers to rent or lease short-term apartments, homes, cottages, spare rooms, and more. They boast 4 million listings worldwide and have a 2017 valuation of $31 billion. Uber is a technology platform connecting driver partners with riders. In 2017, the company had a $48 billion valuation, and is a still-emerging commodity, as 15 percent of American adults have used Uber or a ride sharing app.

These businesses have called for a need for regulation for several reasons. For example, the rapid growth of the sharing economy has forced regulators to catch up to new tech. Regulation can also protect businesses and suppliers by establishing fair prices and allowing for market competition. Additionally, regulation may ensure the security and safety of consumers. Finally, it can be deployed to protect against discrimination.

On the Other Hand: Innovation Without Constraint

The concept of the shared economy can lead to innovative opportunities. These can include such ideas as peer-to-peer platforms that match individual buyers and sellers, lowering energy costs into numerous industries, eliminating the change of ownership, and utilizing idle resources, physical assets, and other services. These opportunities have proven to be popular: 42 percent of Americans have used a sharing economy service, while 22 percent have provided a sharing economy service.

A question arises: Do regulations stifle innovation? There are certainly several arguments against regulatory processes. Firstly, existing legacy regulations and sector-specific laws may be outdated and may not accommodate tech-driven businesses. Protectionist regulations could also increase costs for entering an industry, pushing new, innovative platforms out of the market. Additionally, pre-emptive regulations may increase barriers of entry into the market. Finally, the increased taxations coming from regulations and decreases potential profits from sellers.

Where Does that Leave Us?

There are numerous ways platforms protect themselves and consumers. Some build this protection via reputation, review, and rating systems that allow buyers and/or sellers to rate their experience and offer feedback. Others use self-regulatory models that vet goods and service providers with background, criminal, and license checks and require users to sign up for their platform through ID or credit card verification. Additional platforms utilize the concept of guarantees to provide insurance for buyers and sellers and to take on various transaction risks like taxes and fraud detection for consumers.

Modern Regulatory Options for the Sharing Economy

There are several ways sharing economy platforms can incorporate regulations into their strategy. They can develop flexible, performance-based regulations. They can allow for regulatory waivers and tax exemptions so sharing platforms may continue to operate while policymakers gather data to inform market-specific regulations. Additionally, they can implement review clauses for rules that impact market dynamics, health and safety standards, taxation, and other issues. Finally, they can facilitate open transparent engagement with industry stakeholders.

How the Top Platforms are Expanding

Airbnb launched Trips in 2018, launching the company into the “experience economy.” It will expand Experiences to 1,000 destinations worldwide by the end of 2018. Uber, meanwhile, launched in 2015 and operates 300 throughout the world, and is looking to expand to accommodate bike sharing, hiring rental cars, and buying public transportation tickets.

How Earning an MPA Can Help

A Master of Public Administration is the stepping stone for a career in policymaking and public leadership. Furthermore, a career in public administration can put professionals at the forefront of shaping regulations that help the sharing economy and other innovations flourish.

Conclusion

Sharing economy platforms like Airbnb and Uber have disrupted traditional industries with their innovative use of information technology, changing how buyers and sellers interact with each other. These innovative business models have prompted policymakers to find a balance between enforcing regulation and allowing for continued innovation and industry competition.

Learn more about an online MPA degree from Ohio University.