February 27, 2015

What Is the Sharing Economy?

While the bulk of this conversation has focused on regulating the sharing economy, little time has been spent actually defining what the sharing economy is and is not. The lack of a shared definition is why Matthew Feeney can call it “a relatively new and increasingly popular peer-to-peer economic model,” and why Avi Asher-Schapiro can call it “propaganda,” and how they can both be correct. To perhaps help clarify some of these issues, I’d like to propose a simple definition for the sharing economy.

I agree with Avi’s point that taking an Uber might not be sharing. And I would argue that there may be little sharing actually occurring in the sharing economy.  But that really isn’t the point.  Instead, it is helpful to think of the sharing economy as my colleagues and I have defined it before: any marketplace that uses the Internet to connect distributed networks of individuals to share or exchange otherwise underutilized assets.

When people talk about the sharing economy, they are very rarely focused on remuneration. The term is simply being used as shorthand to describe firms that offer a platform to connect individuals who have something with those who need it.

A cash-strapped homeowner may not have seen her spare bedroom as capital until the Airbnb platform provided a way for her to rent it out to vacationers. A college student with an extra hour between classes may not have viewed his time as a profit opportunity until Instacart and TaskRabbit allowed him to put that time to use for others. A young couple may not have been able to use their couch to connect with other travelers from around the world, but can now do so through Couchsurfing. A retiree with a workbench full of power equipment may not have viewed his tools as a way to supplement his income until 1000 Tools connected him with people in his area wanting to borrow tools.  This is the sharing economy.

While some may choose to call this “the peer economy,” ”peer production,” “the collaborative economy,” or “collaborative consumption,” each of these are simply different attempts to describe the shifts taking place in the way individuals are choosing to transact and interact with one another.

Regardless of what you are calling it, it has very real benefits.  In recent research, Adam Thierer, Matthew Mitchell, and I highlight five distinct ways that the sharing economy is creating real value for both consumers and producers:

  1. By giving people an opportunity to use others’ cars, kitchens, apartments, and other property, it allows underutilized assets or “dead capital” to be put to more productive use.
  2. By bringing together multiple buyers and sellers, it makes both the supply and demand sides of its markets more competitive and allows greater specialization.
  3. By lowering the cost of finding willing partners, haggling over terms, and monitoring performance, it cuts transaction costs and expands the scope of trade.
  4. By aggregating the reviews of past consumers and producers and putting them at the fingertips of new market participants, it can significantly diminish the problem of asymmetric information between producers and consumers.
  5. By offering an “end-run” around regulators who have been captured by existing producers, it allows suppliers to create value for customers long underserved by incumbents that have become inefficient and unresponsive.

Finally, it is also important to remember that many of the policy problems that Avi Asher-Schapiro and Dean Baker presented are often failings of particular firms and business models within the sharing economy and not problems with the entire industry. Viewed in this light, each and every one of these failures represents a profit opportunity for a new or rival firm interested in improving the customer experience. Preemptively regulating an entire class of firms based on these anecdotes can be dangerous. As Jim Dwyer of the New York Times recently warned, “Be careful around anecdotes; they are the black ice of reality.” The sharing economy is too diverse and too rapidly evolving, and these sorts of pixel-sized stories should not be mistaken for larger, universal truths.

The real issues should not be lost in the noise.  Are people sharing? Not always. But, then again, that really isn’t what the sharing economy is about. Instead, they are benefitting from mutually beneficial interactions that would not be possible without the sharing economy’s platforms.