Sharing Economy: Should Uber And Other Non-traditional Industries Like Airbnb Be Encouraged By Governments? - MarketExpress - Free Websites, Share News And Posts Publicly

Shreya Malhotra, September 2, 2022, 0 Comments

Companies like Uber and Airbnb allow people to arrange travel accommodations by interfacing with others online. Individuals can login to Uber App on their smartphones to request a ride to their destinations and experience convenience, comfort, and ease of transport that is at least equal to the price they pay for the ride. Similarly for Airbnb, interested travellers have the opportunity to visit the place of their dreams, without having to pay exorbitant prices for hotels, or having to settle for a hostel or other inexpensive, but perhaps undesirable, alternative. In essence, drivers and hosts can earn extra income by using their personal vehicles or properties to offer services to the public. This system of trust is on the rise as more users continue to join this tribe.
In spite of the long list of advantages and efficiencies arising from the sharing economy, the fight against government regulation continues. Regulating the sharing economy is challenging because it is not clear where these new businesses lie in relation to existing laws. These types of companies do not fit industry regulations perfectly, and they therefore tend to operate outside of the law. Critics of the sharing economy, such as taxicab drivers, landlords, and hotel owners, “argue that operating without regulation gives start-ups an unfair advantage over highly regulated incumbents.” The sharing economy also creates a potential for unregulated misconduct. A few cities have thus aimed to squeeze these businesses into existing regulations, but most attempts have proved unworkable. Because the threat of enforcement actions can have a chilling effect on start-ups and their users, state and local government officials should encourage the growth of the sharing economy” by implementing new regulations. Cities that are prepared to welcome “regulatory innovation may thrive” while cities that do not will lag.
An important shift is taking place in Western economies, with a switch from agricultural and industrial production to services in which experiences and meaning are important. In the case of the sharing economy, the economy based on scarcity transforms into an economy of abundance. We are moving from a time frame of possession to the age of access (Rifkin, 2000). Apart and aside from the Internet of Things there is an increasing power shift between consumers and suppliers and their networks. This process makes it possible for some organizations to grow exponentially.
The article is divided into three sections. The next section talks about the working of the non-traditional industries. We majorly talk about the business models of Uber and Airbnb and why it is a disruptive innovation. In our view, it is important for a policy maker and government to understand the functioning of these non-traditional companies before any policy reform can be suggested. A sub section of it discusses the benefits or efficiencies created by these online platforms and the current state of regulations. It also goes on to explain the challenges non-traditional industries pose to traditional industries. From the cost-benefit analysis, we have come to the conclusion that the government should encourage Uber and other non-traditional industries like Airbnb as it is the future of Internet of communication and mankind needs it. The policy implications are presented in the last section.
Working of Non-traditional Industries : Case of Uber and AirBnb
A pioneer in the sharing economy, Uber is one of many ride service companies that allows passengers to request rides from private vehicles operated by drivers who utilize its mobile application. Users download the Uber application on their devices, set a pickup location, request a ride, wait for a driver to accept, enter the address or name of the destination, and anticipate the driver’s arrival. The app then calculates a “fare quote,” which passengers pay via the application. Since it is not currently subject to the same rate regulations that constrain the taxi industry, Uber may charge higher prices during peak hours and holidays. Moreover, Uber permits drivers to use their personal vehicles to pick up passengers, making Uber-driving more accessible than taxicab ownership. Uber liberates taxi operators across the world with its very limited criteria to become a driver. An interested driver need only confirm that Uber operates in his city and fill out a few documents. Uber’s limited involvement in each ride transaction provides drivers and passengers with the peer-to-peer exchange upon which the sharing economy bases its entire model. Due to this ease of use, new drivers and passengers across the world have welcomed Uber with open arms. Passengers applaud the easy access to this service.
Uber, in comparison to a regular taxi, is free to download on any smartphone, offers cheaper fares, is more convenient in terms of the embedded GPS system as well as online payment and is on-demand. A regular taxi, however, could sometimes be less convenient because the customer has to physically search for one on the streets, is usually more expensive and most of the time cash-only. These would be enough reasons for a customer to choose Uber over a classic cab. For guests, Airbnb is primarily a low-cost option (Guttentag, 2013; Liang, 2015).
Airbnb had to address three key issues to make its business model work: getting hosts and guests on board, avoiding a direct negotiation and establishing trust as a condition for transactions to take place. As indicated by Guttentag (2013), the marketing power is what set Airbnb apart from the traditional vacation rental market.
Disruptive Innovation
Disruption isn’t new. It’s been existing for as long as humankind has been on Earth. From steel mills and disposable cameras to mini mills and digital cameras, disruptive technology keeps advancing and introducing new ways for people to live and do business. Digital transformation and disruption is a revolutionary process in which the market and other surrounding businesses have to adapt to. It shakes the market, creates instability and a whole lot of predicaments for existing companies.
Economic Advantages of Sharing economies
This section talks about the economic advantages and efficiencies that sharing economies create. These firms bring significant economic, environmental, and entrepreneurial benefits including an increase in employment and a reduction in carbon dioxide emissions (in the case of car sharing services). Some of the economic advantages are listed below:
Falling transaction costs
Historically, a property owner might have mailed photographs to be printed in listings which a broker would mail to prospective guests, with high costs at every turn. Self-service uploads and electronic distribution reduce broker costs, improve speed, and make the process more broadly palatable. In transportation services such as Uber and Lyft, cost efficiencies include removing dispatchers and eliminating specialized equipment (such as purpose-built radios and credit card processors) as the service can be provided through smartphones. Lower communication costs in turn allow distribution of more information.
Improved allocation of resources
Software platforms also improve allocative efficiency. Historically, a property owner would be unlikely to rent a residence while away for a weekend; only an absence of weeks (or more likely, months) would justify a listing with a broker in light of the effort required for both property owner and broker, and the cost associated with the transaction.
Opportunities for Host in Sharing Economy:
For Airbnb, as long as you have an actual property, you are eligible to sign yourself up as a host. For Uber, employees do have to go through a typical recruitment process, yet don’t have to go through the same trouble that traditional taxi drivers have to go through in order to qualify for the job. On eBay, consumers can either buy or sell from other consumers or other businesses as long as they have the items to sell them.
Challenges for the traditional industries
Sharing economy firms are disrupting traditional industries across the globe. Rather than rolling out the red carpet, city governments have resisted many of these new entrants issuing subpoenas and cease-and-desist orders (Harvard Business Review). Regulation is often the most significant barrier to future growth for sharing economy firms.
Growth of Uber and non-traditional companies like Airbnb increases competition for traditional transport and hospitality industries. Taxi unions and drivers globally have ignited riots and strikes in response to Uber’s growth. Further, many cities have found that Uber violates numerous local laws and have prohibited its presence within their jurisdictions.
Current State of regulation or government intervention
The main purpose of protectionist regulation is to protect “incumbents” at the expense of new entrants. Consumer experience seems to confirm the possibility of regulatory capture. For example, customers often struggle to understand why the number of taxis is limited to a fixed quantity creating shortages at peak times. In contrast, incumbent taxis clearly benefit from this scheme, as it allows higher prices for those drivers who have the required licenses, as well as higher prices when licenses are sold on the secondary market.
The effects of licensing are mixed. A licensing scheme may be an effective means to impose minimum quality standards that protect consumers from low-quality service providers. However, licensing also invites license-holders to pressure public authorities to exclude new entrants from the market, as such market entry would create new competition and reduce the value of their licenses.
Policy Implications
Many years ago, Joseph Schumpeter postulated that competition from “the new commodity, the new technology, the new source of supply, the new type of organization” would be more relevant than perfect competition. He described this as competition which “strikes not at the margins of the profits and the outputs of the existing firms but at their foundations and their very lives” (Schumpeter, 1990, p.84). His prophecy has certainly come true. The sharing economy, generally defined as “the peer-to-peer-based activity of obtaining, giving, or sharing the access to goods and services has become an inseparable part of our economy.
Uber and Airbnb have provided people and cities with income and convenience. They have also raised issues of public safety and fair business practices.
From the above analysis, we can say that the sharing economy does not pose a new problem in the world of innovation versus regulation, but instead showcases a modern version of a traditional sharing concept that must find its place in the legal system. The attempt to squeeze these companies into existing regulations is a poor and temporary solution. Rather than dismissing the presence of these companies and maintaining a multiplicity of lawsuits and fines imposed on both the companies and uninformed users, the government should instead develop sharing economy-specific regulations that monitor the new companies and protect users and the incumbent industries.
Software platforms, such as Airbnb and Uber, require a regulatory framework that simultaneously allows the key efficiencies the platforms seek to offer and assures that they adequately address the rights of consumers and third parties. Policymakers should embrace the efficiencies these platforms provide, including removing unnecessary requirements and protectionist rules that primarily benefit incumbents. Yet, platforms must be prepared to comply with regulatory requirements that genuinely protect customers, as well as requirements to avoid harm to noncustomers.
The uniqueness of the sharing economy poses several new challenges for regulators in countries across the world. The objective of regulating such sectors is to encourage competition that will eventually lead to innovation, lower costs, and better products and services.
To conclude, I am of the opinion that the government cannot turn a blind eye to the upcoming non-traditional industries and industries like Uber, Airbnb should be encouraged by the government. The uniqueness of the sharing economy poses several new challenges for regulators in countries across the world. The objective of regulating such sectors is to encourage competition that will eventually lead to innovation, lower costs, and better products and services.
The sharing economy is just going to continue to grow, and governments will be challenged to understand and manage its implications while embracing its benefits. However, governments will be at a significant disadvantage if they wait too long and newer technologies and markets will have already been developed that do not follow traditional models.
Geissinger, A., Laurell, C., & Sandström, C. (2020). Digital Disruption beyond Uber and Airbnb—Tracking the long tail of the sharing economy. Technological Forecasting and Social Change, 155, 119323.
Guttentag, D. (2013), “Airbnb: disruptive innovation and the rise of an informal tourism accommodation sector”, Current Issues in Tourism, pp. 1-26
Jonas, A. (2016). Share and share dislike: The rise of Uber and AirBnB and how New York City should play nice. Journal of Law and Policy, 24(1), 6.
Liang, L.J. (2015), “Understanding repurchase intention of Airbnb consumers: perceived authenticity, EWoM and price sensitivity”, master thesis, University of Guelph, Guelph.
Muller, E. (2020). Delimiting disruption: Why Uber is disruptive, but Airbnb is not. International Journal of Research in Marketing, 37(1), 43-55.
Oskam, J., & Boswijk, A. (2016). Airbnb: the future of networked hospitality businesses. Journal of tourism futures.
Stors, N. and Kagermeier, A. (2015), “Motives for using Airbnb in metropolitan tourism – why do people sleep in the bed of a stranger?”, Regions Magazine, Vol. 299 No. 1, pp. 17-9.
Yaraghi, N., & Ravi, S. (2017). The current and future state of the sharing economy. Available at SSRN 3041207.
Varma, A., Jukic, N., Pestek, A., Shultz, C. J., & Nestorov, S. (2016). Airbnb: Exciting innovation or passing fad?. Tourism Management Perspectives, 20, 228-237.